OTTAWA, November 3, 2006

File No. 4214-12
AD/1358
File No. 4218-21
CVD/118

DECISION

On October 20, 2006, in accordance with subsection 38(1) of the Special Import Measures Act, the President of the Canada Border Services Agency made a preliminary determination of dumping respecting certain copper pipe fittings originating in or exported from the United States of America, the Republic of Korea and the People's Republic of China and made a preliminary determination of subsidizing respecting certain copper pipe fittings originating in or exported from the People's Republic of China.

TABLE OF CONTENTS

SUMMARY OF EVENTS

1. On April 25, 2006, Cello Products Inc. (Cello) of Cambridge, Ontario, filed a complaint alleging the injurious dumping of certain copper pipe fittings originating in or exported from the United States of America (United States), the Republic of (Korea) and the People's Republic of China (China). The complaint also alleged the injurious subsidizing of certain copper pipe fittings originating in or exported from China. The complainant provided evidence that the subject goods have been dumped and that certain copper pipe fittings from China have also been subsidized, and that the dumping and subsidizing have caused injury or are threatening to cause injury to the Canadian industry producing these goods.
   
   
2. On May 9, 2006, the Canada Border Services Agency (CBSA) informed Cello that the complaint was properly documented and concurrently notified the governments of the United States, Korea and China that a properly documented complaint had been filed with the CBSA.
   
   
3. On June 5, 2006, consultations were conducted between Canadian government officials and representatives of the Government of China (GOC), in accordance with Article 13.1 of the WTO Subsidies Agreement.
   
   
4. On June 8, 2006, the President of the CBSA (President) initiated an investigation pursuant to subsection 31(1) of the Special Import Measures Act (SIMA)¹ into the alleged injurious dumping of certain copper pipe fittings originating in or exported from the United States, Korea and China.  On the same date, the President of the CBSA initiated an investigation pursuant to subsection 31(1) of SIMA into the alleged injurious subsidizing of certain copper pipe fittings originating in or exported from China.
   
   
5. Upon receiving notice of the initiation of the investigation, the Canadian International Trade Tribunal (Tribunal) started its preliminary injury inquiry. On August 8, 2006, the Tribunal made a preliminary determination that the evidence disclosed a reasonable indication that the dumping and subsidizing of certain copper pipe fittings have caused injury to the Canadian industry.
   
   
6. On August 17, 2006, pursuant to paragraphs 39(1)(a) and (b) of SIMA, the President made the decision to extend the 90day period for making a preliminary decision in the investigation to 135 days, due to the complexity and novelty of the issues presented by the investigation and the variety of goods and number of persons involved in the investigation.
   
   
7. On October 20, 2006, pursuant to subsection 38(1) of SIMA,the President made a preliminary determination of dumping respecting certain copper pipe fittings originating in or exported from the United States, Korea and China and made a preliminary determination of subsidizing concerning the subject goods originating in or exported from China.
   
   
8. As China is listed under Part I of the DAC List of Aid Recipients ² maintained by the Organization for Economic Cooperation and Development, the CBSA will extend developing country status to China for purposes of the subsidy investigation. Therefore, China is eligible for the higher insignificance (amount of subsidy) and negligibility (volume of subsidized goods) thresholds for the termination of a subsidy investigation involving a developing country.
   
   

PERIOD OF INVESTIGATION

9. The dumping investigation covers all subject goods released into Canada during the period of investigation (POI), that is, from April 1, 2005 to March 31, 2006. The subsidy investigation encompasses the period from January 1, 2005 to March 31, 2006.
   
   

INTERESTED PARTIES

Complainant

10. The complainant, Cello Products, Inc., is the major Canadian producer of certain copper pipe fittings. The complainant's headquarters and factory are located at 210 Avenue Road in Cambridge, Ontario. The only other Canadian producer of copper solder pipe fittings, Bow Plumbing Group, Inc., of Montréal, Quebec, also supports the complaint.
    
    

Exporters - United States

11. At the time of the initiation of the investigation, the CBSA identified approximately 1,300 exporters that exported United States origin goods to Canada under the applicable HS classification numbers. Given the unusually large number of exporters, the CBSA relied upon paragraph 30.3(1)(a) of SIMA, which provides that margins of dumping may be determined in relation to the largest percentage of goods that can reasonably be investigated if it is determined that it would be impracticable to determine a margin of dumping in relation to all goods because of the number of exporters, producers or importers.
    
    
12. At the time of the initiation of the investigation, the CBSA identified thirteen potential exporters, which collectively accounted for 97% of the total value of subject goods originating in the United States and exported to Canada during the POI. The CBSA sent a dumping Request for Information (RFI) to each of these selected exporters. Nonselected exporters were not requested to provide a response to an RFI. Complete submissions were received from 4 exporters of subject goods. In addition, a reply from 1 exporter was received stating that the respondent had not exported subject goods during the period of investigation.
    
    

Exporters - Korea

13. At the time of the initiation of the investigation, the CBSA identified 15 exporters of subject goods of Korean origin. The CBSA sent a dumping RFI to 11 exporters in Korea and 4 exporters located in the United States that also exported subject goods of Korean origin. Submissions were received from 5 of the exporters. Additional exporter and importer replies were received indicating that 6 of the exporters identified at the initiation of the investigation had not exported subject goods during the period of investigation.
    
    

Exporters - China

14. At the time of the initiation of the investigation, the CBSA had identified 90 exporters of exported subject goods of Chinese origin. However, a majority of the exporters shipped small quantities and 15 of the exporters identified by the CBSA accounted for 84% of the total value of imports of subject goods. The CBSA sent a dumping RFI to each of the 15 selected exporters, some of whom exported subject goods of Chinese origin through the United States. Nonselected exporters were not requested to respond to an RFI. The CBSA also sent a subsidy RFI to all selected exporters as well as to the GOC. Submissions were received from two exporters. An additional 4 exporter replies were received stating that the respondent had not exported subject goods during the period of investigation.
    
    

Importers

15. At the initiation of the investigation, 77 importers were identified as having imported goods from the selected exporters from the United States, Korea and China. The CBSA sent an RFI to each of the 77 selected importers. Responses to the CBSA's Request for Information (RFI) were received from 17 importers. During the investigation, additional importers in Canada were identified based on information provided by exporters. As a result of this information, the number of importers identified as having imported subject goods from the selected exporters has increased to 151.
    
    

PRODUCT DEFINITION

16. For the purpose of this investigation, the subject goods are defined as:

    Solder joint pressure pipe fittings and solder joint drainage, waste and vent pipe fittings, made of cast copper alloy, wrought copper alloy or wrought copper, for use in heating, plumbing, air conditioning and refrigeration applications, originating in or exported from the United States of America, the Republic of Korea and the People’s Republic of China, restricted to the products enumerated in Appendix 1.

    
    
    
17. Appendix 1 contains a specific listing of copper pipe fittings, that constitute subject goods, broken down into the following categories: Adaptors (female, male and other); Bushings; Couplings; Elbows; Flanges; Pressure Tees; Unions; P/S traps; DWV TY's; DWV Y's; and Caps and Cleanouts.
    
    
18. For further clarity, Appendix 1 contains explanatory notes covering size (i.e., metric vs. imperial) as well as nominal vs. inside diameter and type of fitting (i.e., cast vs. wrought). Appendix 1 also contains an Abbreviation Chart used in the list of models of copper pipe fittings.
    
    

ADDITIONAL PRODUCT INFORMATION

19. Solder joint copper pipe fittings are used to connect copper pipes, tubes or other fittings to one another. The methods of joining Copper Fittings include soldering, silver brazing and epoxy or similar gluing techniques. The connections are made by fitting two pieces together and heating the ends of the tubing and fitting, and filling the gap between the two with melted solder which solidifies on cooling to form a strong, leak proof connection. The fittings can also be used to connect copper tubing to other metal systems by use of threaded fittings. However, at least one end of a fitting is always soldered. Finally, the connection can also be made using epoxy or similar gluing methods.
    
    
20. Solder joint copper pipe pressure fittings may be used in conveying liquids (e.g. potable water), gases and air under pressure in residential, industrial, commercial and institutional buildings. Copper pipe pressure fittings are also used in a variety of airconditioning and refrigeration (ACR) applications. The types of fittings used in air conditioning applications are typically identified by reference to their outside diameters, whereas the same fittings used in nonair conditioning applications such as plumbing and heating are typically identified by reference to their inside or "nominal" diameters. Apart from the reference to diameter, a fitting for an air conditioning application is the same as a fitting for a nonair conditioning application.
    
    
21. Solder joint copper pipe drainage, waste and vent (DWV) fittings are used primarily to convey waste from buildings to sewers and for venting purposes under lowpressure conditions.
    
    
22. Female and male adaptors are used to connect a copper tube to an iron pipe or a water heater. Other adapters include ferrules that are used to join a copper tube to a castiron pipe in older installations. Bushings are used to reduce the diameter of other fittings. Couplings are used to join tubes of either the same size or two different sizes to make longer runs through buildings. Elbows are used to change the direction of a copper tube by either 45° or 90°. Flanges and unions are used to provide a connection that can be either unscrewed or unbolted for maintenance or repairs. Tees are used to allow a copper line to be split into two separate lines. There are pressure tees and drainage tees; TY's (90°) and Y's (45°). Traps are used to trap water to prevent sewer gases from coming back into a building. Cleanouts are used to provide access to drainage systems in case of blockage; and caps are removable plugs used to permit inspection and access for the purpose of clearing an obstruction.
    
    
23. Solder joint pipe fittings manufactured in Canada and the United States are made to the standards of the ASME (American Society of Mechanical Engineers) / ANSI (American National Standards Institute) and to the standards of the MSS (Manufacturers Standardization Society)
    
    
24. Details concerning the production process of copper pipe fittings were provided in the Statement of Reasons issued for the initiation of the investigation. This document is available on the CBSA Web site at the following address:
    URL: http://www.cbsa.gc.ca/sima/anti-dumping/ad1358adisor-e.html
    
    

CLASSIFICATION OF IMPORTS

25. The subject goods are properly classified in Chapter 74 of the Customs Tariff under the following Harmonized System (HS) classification numbers:
    
    

    HS 74.12	Copper tube or pipe fittings (for example, couplings, elbows, sleeves).
    7412.10.00	of refined copper
    7412.10.00.11	Pressure type: Wrought
    7412.10.00.19	Pressure type: Other
    7412.10.00.20	Drainage type
    7412.20.00	of copper alloys
    7412.20.00.11	Pressure type: Forged
    7412.20.00.12	Pressure type: Cast
    7412.20.00.19	Pressure type: Other
    7412.20.00.20	Drainage type

    
    
    
26. It should be noted that the subject goods encompass a subset of the products that fall within these HS numbers as they relate only to soldered joint copper pipe fittings of certain dimensions.
    
    

CANADIAN INDUSTRY

27. Cello was founded in 1946 in Cambridge, Ontario as a manufacturer of cast copper alloy solder joint pipe fittings. Wrought copper and wrought copper alloy solder joint pipe fittings were added to the product line in the 1960's. Today, Cello produces an extensive line of wrought and cast brass copper pipe fittings, in sizes ranging from 1/8in. to 8in. In addition to manufacturing the goods subject to the complaint, Cello manufactures brass fittings and flanges. Cello employs approximately 75 people.
    
    
28. Bow Plumbing Group Inc. (Bow) was founded in 1949 as a manufacturer of various plastic products including some specialty plumbing items. Bow began production of wrought copper and wrought copper alloy solder joint pipe fittings in 1991 when the company acquired the assets of Emco Canada, a former manufacturer of copper pipe fittings.
    
    
29. Prior to initiation, the CBSA confirmed that Cello met the standing requirements of subsection 31(2) of SIMA. There has been no change in the structure of the Canadian industry since the initiation of the investigation.
    
    

IMPORTS INTO CANADA

30. During the preliminary phase of the investigation, the CBSA further refined its estimates of the volume of imports. The CBSA utilized its Customs Commercial System (CCS), reviewed customs accounting documents and examined information received during the investigation from importers and exporters. The CBSA also received information from an importer, Elkhart Products Limited, which identified and corrected a discrepancy involving the quantity reported to the CBSA relating to one of its importations during the POI ³. This additional analysis enabled the CBSA to refine its estimates as to the proportion of nonsubject copper pipe fittings (i.e. nonsoldered fittings and fittings not identified in Appendix 1) imported under the relevant HS classification numbers.
    
    
    
    
31. The CBSA’s revised estimates of importations of subject goods, based on information gathered during the preliminary phase of the investigation, are presented in the following table:

    Apparent Canadian Imports (April 1, 2005 to March 31, 2006) ⁴

    Imports into Canada	Volume (pounds)	Import Share (%)
    United States	3,645,573	33%
    China	2,582,802	23%
    Korea	2,536,063	23%
    Total Imports from Subject Countries	8,764,438	79 %
    Total Imports from Non‑subject Countries	2,357,199	21%
    Total Imports	11,121,637	100%

    
    
    

INVESTIGATION PROCESS

32. At the time of the initiation of the investigation, the CBSA requested information from selected exporters to estimate the normal values, export prices, and amounts of subsidy for the subject goods. Details on the number of selected exporters are contained in the section titled "Interested Parties" in this Statement of Reasons. Nonselected exporters were not requested to respond to an RFI. Information concerning imports of the subject goods was also requested from selected importers.
    
    
33. In conducting its investigation, the CBSA requested that selected exporters and importers provide sales and cost information necessary to determine the normal values and export prices of the subject goods. Information was also requested from the GOC and producers and exporters located in China in order to determine the amount of subsidy, if any, applicable to the subject goods.
    
    
34. Information concerning export prices and import volumes was requested from 77 importers. In addition, RFIs concerning dumping were sent to 18 exporters in the United States, including 4 exporters of subject goods of Korean origin and 1 exporter of subject goods of Chinese origin. Dumping RFIs were also sent to 11 exporters in Korea and to 9 exporters in China, and 6 exporters of subject goods of Chinese origin located outside of China. All of the RFIs included instructions indicating that exporters that were not the manufacturer of the goods were to forward a copy of the RFI to the respective manufacturer in the United States, Korea or China.
    
    
35. RFIs relating to the subsidy investigation were sent to 9 exporters in China, and 6 exporters of subject goods of Chinese origin located outside of China, as well as to the GOC via that country's local embassy.
    
    
36. Responses to the RFIs on dumping that were deemed complete for purposes of the preliminary determination were received from 4 exporters located in the United States, 1 exporter located in Korea and 2 exporters located in China (both of which also responded to the subsidy RFIs). During the investigation, the CBSA confirmed that 1 of the selected exporters in the United States did not export subject goods during the POI, 6 of the selected exporters in Korea did not export subject goods during the POI and 4 of the selected exporters in China did not export subject goods during the POI. The remaining selected exporters that were requested to provide a response to an RFI did not provide a response or did not provide a complete response.
    
    
37. A complete response to the CBSA's subsidy RFI was also received from the GOC.
    
    
38. Submissions were also received from 17 importers, 4 of which are related to United States exporters.
    
    

DUMPING INVESTIGATION

39. Normal values are generally based on the domestic selling prices of the goods in the country of export or based on the total cost of the goods (cost of production, administrative, selling and all other costs) plus an amount for profit.
    
    
40. The export price of imported goods is generally established as the lesser of the importer's purchase price or the exporter's selling price to Canada, less all of the costs and expenses related to exporting the goods. When the export price is less than the normal value, the difference is the margin of dumping. Where information submitted to the CBSA by exporters was found to be substantially complete, such information was used to estimate the margins of dumping.
    
    
41. With respect to the exporters in which company-specific information was utilized for the preliminary determination, the normal value and export price was estimated for each model shipped to Canada. The margin of dumping for each of the exporters was then estimated by subtracting the total export price from the total normal value for all of the sales made to Canada during the POI. As such, any sales made at prices that were not dumped reduced the overall margin of dumping for that particular exporter.
    
    
42. For those exporters that were requested to provide a response to an RFI (the selected exporters) and did not provide a complete response, normal values were estimated by advancing export prices by the highest margin of dumping from the results found for cooperative exporters of goods of the same country.
    
    
43. For those exporters that were not requested to provide a response to an RFI (the nonselected exporters), normal values were estimated based upon the weighted average margin of dumping estimated for cooperative exporters of goods of the same country, analyzed thus far during the investigation, excluding those exporters with a margin of dumping that is insignificant (less than 2% of the export price) pursuant to subsection 25.2(3) of the SIMR.
    
    
44. In calculating the weighted average estimated margin of dumping of a country, the overall estimated margins of dumping found in respect of each exporter were weighted according to the volume of subject goods exported to Canada during the POI.
    
    

RESULTS OF THE DUMPING INVESTIGATION - UNITED STATES

45. RFIs concerning dumping were sent to 13 companies in the United States regarding the export of subject goods originating in the United States. During the investigation, it was found that 1 of these companies did not export subject goods to Canada during the POI. Of the remaining 12 selected exporters of subject goods originating in the United States that were requested to provide a response to the CBSA's RFI, complete responses were received from 4 companies, 3 of which were the subject of onsite verification during the end of August and early September. In addition, an incomplete response to the RFI was received from Mueller Industries, Inc. of Memphis, Tennessee. Specific details relating to each of the exporters that provided a response to the RFI are as follows:
    
    

    Company Name	Designation	Location
    Barnes Distribution	Distributor	Cleveland, OH
    Elkhart Products Corporation	Producer	Elkhart, IN
    Nibco, Inc.	Producer	Elkhart, IN
    United Refrigeration, Inc.	Distributor	Philadelphia, PA
    Mueller Industries, Inc.	Producer	Memphis, TN

    
    
    

Barnes Distribution

46. Submissions were received from Barnes Distribution and its related Canadian importer Barnes Distribution Canada. The submissions were deemed to be comprehensive and acceptable for purposes of the preliminary determination.
    
    
47. Barnes Distribution is an international, full-service distributor of maintenance, repair and operating (MRO) supplies, with head offices located in Cleveland, Ohio. Barnes Distribution is a business unit of Barnes Group Inc. (NYSE: B) a publicly traded company. Barnes Distribution purchases copper pipe fittings from suppliers who may be manufacturers or distributors.
    
    

a) Normal Value

48. Barnes Distribution sells copper pipe fittings in both its domestic market in the United States and for export. Barnes Distribution had a sufficient number of sales of like goods in the United States, and as such, normal values were estimated based on these sales using the methodology in section 15 of SIMA. Since Barnes Distribution is a distributor, a further examination of the acquisition price will be made during the next phase of the investigation.
    
    

b) Export Price

49. Although Barnes Distribution sells its product to a related importer in Canada, further information from Barnes Distribution and Barnes Distribution Canada needs to be reviewed by the CBSA during the final phase of the investigation before conducting a reliability test of Barnes Distribution's selling prices to Barnes Distribution Canada pursuant to section 25 of SIMA. As a result, for purposes of the preliminary determination, export prices were estimated using the methodology in section 24 of SIMA, on the basis of the exporter's selling price less all costs, charges and expenses arising from the exportation of the goods.
    
    

c) Margin of Dumping

50. The total normal value was compared with the total export price for all subject goods imported into Canada during the POI. It was found that all of the goods exported by Barnes Distribution were dumped by an estimated weighted average margin of dumping of 88%, expressed as a percentage of export price. The margins of dumping ranged from 8% to 433%, expressed as a percentage of export price.
    
    

Elkhart Products Corporation

51. Submissions in response to the RFIs were received from Elkhart Products Corporation (Elkhart) and its related Canadian importer Elkhart Products Ltd. (Elkhart Canada). Onsite verification of the submissions took place during the last week of August 2006, and the submissions were deemed to be comprehensive and acceptable for purposes of the preliminary determination.
    
    

a) Normal Value

52. Elkhart produces the subject goods for both its domestic market in the United States and for export. Since Elkhart had sales of like goods in the United States, normal values were estimated for the majority of its products pursuant to section 15 of SIMA, based on profitable domestic sales. In situations in which there were no domestic sales, or domestic sales were not made at a profit, normal values were estimated pursuant to paragraph 19(b) of SIMA, based on the aggregate of the full cost of production of the goods, plus a reasonable amount for all general, selling, administrative and other costs, plus a reasonable amount for profits. For purposes of the preliminary determination, the amount for profit was based on the profit earned by Elkhart on sales of similar models sold in the domestic market.
    
    
53. An adjustment pursuant to section 6 of the Special Import Measures Regulations (SIMR) was made to the normal values to account for prompt payment discounts and deferred rebates.
    
    
54. A number of Elkhart products involve cast copper pipe fittings sourced from an unrelated producer in the United States. The CBSA did not receive a response from this manufacturer, and as such was unable to confirm whether the purchase price paid by Elkhart was at a price that covered the full cost of the goods.
    
    
55. A comparison of the acquisition price paid by Elkhart for the externally sourced products was made with comparable products produced by another manufacturer in the United States for which the CBSA had information. In those cases in which the CBSA was able to confirm the acquisition price was above the estimated total cost of the goods, the acquisition price was accepted and formed part of the cost for the estimate of the normal value. In those instances in which the CBSA was not able to confirm whether the acquisition price paid by Elkhart was above the total cost of the goods, the normal value was estimated by way of an advance over the export price based on the average margin of dumping found for all other Elkhart sales.
    
    

b) Export Price

56. Elkhart sells its products to a related company in Canada, Elkhart Canada. As such, an analysis must be conducted in order to determine if the export price as estimated pursuant to section 24, based on the lesser of the exporter's selling price or importer's purchase price, is reliable. This analysis is conducted by comparing the estimated section 24 export price with the estimated section 25 "deductive" export price, based on the importer's resale price of the imported goods in Canada, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada, all costs incurred in reselling the goods (including duties and taxes), and an amount representative of the average industry profit in Canada. (Further details of the calculation of the average industry profit can be found in the "Industry Profit in Canada" section below).
    
    
57. The results of the reliability analysis revealed that Elkhart's export prices estimated pursuant to section 24 of SIMA were unreliable. As such, the export prices were estimated using the methodology in section 25 of SIMA based on a "deductive" export price, based on the importer's resale price of the imported goods in Canada, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada, all costs incurred in reselling the goods (including duties and taxes), and an amount representative of the average industry profit in Canada.
    
    

c) Margin of Dumping

58. The total normal value was compared with the total export price for all subject goods imported into Canada during the POI. The total export price exceeded the total normal value, and as a result, the subject goods exported to Canada by Elkhart were not dumped.
    
    

Nibco, Inc.

59. A submission in response to the RFI was received from Nibco, Inc. (Nibco). Onsite verification of the submission took place in September 2006, and the submission was deemed to be comprehensive and acceptable for purposes of the preliminary determination.
    
    

a) Normal Value

60. Nibco produces the subject goods for both its domestic market in the United States and for export. Where Nibco had sufficient sales of like goods in the United States, normal values were estimated based on these sales pursuant to section 15 of SIMA, using profitable domestic sales. In situations in which there were no domestic sales, or domestic sales were not made at a profit, normal values were estimated pursuant to paragraph 19(b) of SIMA, as the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The amount for profit was based on the profit earned by Nibco on sales of similar models sold in the domestic market.
    
    

b) Export Price

61. As Nibco sold subject goods to unrelated importers in Canada, export prices were estimated using the methodology in section 24 of SIMA, on the basis of the exporter's selling price less all costs, charges and expenses arising from the exportation of the goods.
    
    

c) Margin of Dumping

62. The total normal value was compared with the total export price for all subject goods imported into Canada during the POI. It was found that 98% of the goods exported by Nibco Inc. were dumped by an estimated weighted average margin of dumping of 26%, expressed as a percentage of export price. The margins of dumping ranged from less than 1% to 441%, expressed as a percentage of export price.
    
    

United Refrigeration, Inc.

63. Submissions in response to the RFIs were received from United Refrigeration, Inc. (United) and its related Canadian importer United Refrigeration of Canada (URC). United provided information pertaining to the sales and costs of like goods sold in the domestic market and of the goods exported to Canada. Onsite verification of the submissions took place in September 2006, and the submissions were found to be comprehensive and acceptable for purposes of the preliminary determination.
    
    

a) Normal Value

64. United is a distributor of refrigeration, air conditioning and heating parts and equipment, including copper pipe fittings. Where United had sufficient sales of like goods in the United States, normal values were estimated based on these sales pursuant to section 15 of SIMA, using profitable domestic sales. In situations in which there were no domestic sales, or domestic sales were not made at a profit, normal values were estimated pursuant to paragraph 19(b) of SIMA, as the aggregate of the cost of production of the goods, a reasonable amount for administrative, selling and all other costs, and a reasonable amount for profits. The profit used in estimating the normal values under paragraph 19(b) was based on United's profits made on domestic sales of goods of the same general category.
    
    
65. Since United is a distributor, an examination of the acquisition price was made in order to determine whether the price paid by United was above the total cost of the goods. Since the CBSA did not receive cost information from the manufacturer of the goods, the CBSA used cost information on comparable products produced by other manufacturers in the United States, where this information was available, to confirm that the acquisition price of the goods purchased by United was higher than the manufacturer's full cost of the goods. In instances where this information was not available, the normal value was estimated by advancing the export price by an amount equal to the average margin of dumping estimated for United on sales of subject goods to Canada where this information was available.
    
    

b) Export Price

66. United sells its products to a related company in Canada, URC. As such, an analysis must be conducted in order to determine if the export price as estimated pursuant to section 24, based on the lesser of the exporter's selling price or importer's purchase price, is reliable. This analysis is conducted by comparing the estimated section 24 export price with the estimated section 25 "deductive" export price, based on the importer's resale price of the imported goods in Canada, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada, all costs incurred in reselling the goods (including duties and taxes), and an amount representative of the average industry profit in Canada. Further details of the calculation of the average industry profit in Canada can be found in the "Industry Profit in Canada" section below.
    
    
67. The results of the reliability analysis revealed that United's export prices estimated pursuant to section 24 of SIMA were generally reliable. As a result, export prices were estimated using the methodology in section 24 of SIMA, on the basis of the exporter's selling price less all costs, charges and expenses arising from the exportation of the goods.
    
    

c) Margin of Dumping

68. The total normal value was compared with the total export price for all subject goods imported into Canada during the POI. It was found that almost 100% of the goods exported by United were dumped by an estimated weighted average margin of dumping of 28%, expressed as a percentage of export price. The margins of dumping ranged from 1% to 201%, expressed as a percentage of export price.
    
    

Mueller Industries, Inc.

69. Mueller Industries, Inc. (Mueller), a producer and exporter of subject goods, and related companies Mueller Streamline Co. and Streamline Copper & Brass Ltd. (an importer in Canada during the period of investigation) were requested to provide responses to the CBSA's RFIs. Responses were received from each of the companies. However, certain cost information necessary to estimate normal values was not provided and the information submitted is not adequate for making determinations on dumping. As a result, for purposes of the preliminary determination, 100% of the subject goods exported by Mueller were estimated to be dumped by 265%, as a percentage of export price, representing the highest estimated margin of dumping (excluding anomalies) found from a cooperative United States exporter during the investigation.
    
    

Other Exporters of Subject Goods Originating in the United States

70. The margin of dumping for exporters of goods originating in the United States that were not part of the CBSA's selection and were not requested to provide a response to the CBSA is estimated to be 27%, and is based on the weighted average margin of dumping estimated for cooperative exporters analyzed thus far during the investigation, excluding those exporters with a margin of dumping that is insignificant (less than 2% of the export price) pursuant to subsection 25.2(3) of the SIMR.
    
    
71. The estimated margin of dumping for exporters of goods originating in the United States that were part of the CBSA's selection and either did not respond to the CBSA's RFI, or provided an incomplete response, is based on the highest margin of dumping estimated for cooperative exporters analyzed thus far during the investigation (excluding anomalies). The margin of dumping has been estimated to be 265%, expressed as a percentage of the export price.
    
    
72. The summary of results relating to the dumping investigation involving the United States reveals that approximately 79% of the volume of subject goods was dumped by an estimated weighted average margin of dumping of 160%, expressed as a percentage of the export price. The margins of dumping for the goods range from less than 1% to 441%, expressed as a percentage of the export price.
    
    

Industry Profit in Canada

73. When an exporter sells product to a related importer in Canada an analysis must be conducted in order to determine if the export price as estimated pursuant to section 24, based on the lesser of the exporter's selling price or importer's purchase price, is reliable. This analysis is conducted by comparing the estimated section 24 export price with the estimated section 25 "deductive" export price, based on the importer's resale price of the imported goods in Canada, less deductions for all costs incurred in preparing, shipping and exporting the goods to Canada, all costs incurred in reselling the goods (including duties and taxes), and an amount representative of the average industry profit in Canada.
    
    
74. Section 22, paragraphs (a) to (c), of the SIMR prescribes the methods by which the amount for the average industry profit may be determined.
    
    
    • Paragraph (a) refers to the amount of profit that generally results from sales of like goods in Canada by vendors, who are at the same or substantially the same trade level as the importer, to purchasers who are not related with those vendors;
      
      
      
      
    • Paragraph (b) refers to the amount of profit that generally results from sales of goods of the same general category in Canada by vendors, who are at the same or substantially the same trade level as the importer, to purchasers in Canada who are not associated with those vendors, and;
      
      
    • Paragraph (c) refers to the amount of profit that generally results from sales of goods that are of the next largest to the category referred to in paragraph (b); by vendors in Canada who are not associated with those vendors.
      
      
75. Paragraphs 22 (a) to (c) of the SIMR are applied in sequence. Thus, it is the CBSA policy to always consider and examine the profits on the narrowest group or range of goods of the same class or kind, for which sufficient information can be obtained.
    
    
76. All known importers of the subject goods were sent an RFI at the time of the initiation of the investigation. That RFI contained a request for financial statement information in order that an industry profit might be determined for the POI. This also resulted in information being requested from the Canadian producers, as they are also importers of some of the subject goods.
    
    
77. Of the responses received, 7 vendors were determined to have operated at a profit during the POI. Two responses involve vendors that fall within paragraph 22(b) of the SIMR - "same general category". Both companies operated at a profit during the POI, however, were the CBSA to base the amount for profit solely on these two companies, it would be possible for confidential information to be released due to the limited number of companies involved.
    
    
78. The remaining 5 responses involve vendors that fall within paragraph 22(c) of the SIMR - "the next largest category". All of these firms operated at a profit during the POI.
    
    
79. If no amount for profits can be ascertained under either paragraphs 22(a) or (b), then paragraph 22(c) authorizes the use of profits realized on sales in Canada on goods of a broader range than under the previous method, that is, on goods that are of the group or range of goods that is next largest to the goods of the same general category. This category of goods should include the imported goods as well as goods of the same general category as those under investigation.
    
    
80. Therefore, the industry profit amount was determined in the manner described in paragraph 22(c) of the SIMR, based on the profit information relating to the 7 vendors that operated at a profit during the POI and was calculated to be 8.31%.
    
    

RESULTS OF THE DUMPING INVESTIGATION - KOREA

81. The CBSA sent RFIs to 15 selected exporters at the initiation of the investigation. Responses were received from 5 of these exporters. All 5 responses were initially determined to be incomplete. Supplementary RFI's were sent to each of the 5 exporters. Responses to the supplemental RFIs were received from 4 exporters, however three of these were also deemed incomplete by the CBSA. One supplemental response was considered complete, but was provided too late to be verified prior to the preliminary determination. As such, the CBSA received only one complete response to its RFI as follows:
    
    

    Company Name	Designation	Location
    Jungwoo Metal Industry Co., Ltd.	Producer	Seoul, Korea

    
    
    

a) Normal Value

82. As indicated above, the only complete response received by the CBSA was provided late. Consequently, the CBSA was unable to conduct an onsite verification of the information provided by the exporter for the purposes of the preliminary determination. The CBSA has therefore not been able to establish a sufficient level of confidence in the costing and selling information provided by the exporter in order to estimate normal values for the preliminary determination.
    
    
83. In view of the fact that the response received from the exporter has not been verified, the preliminary decision with respect to dumping is based on the facts available, specifically the normal values estimated for the initiation of the investigation and the estimated export prices based on information provided by importers that responded to the CBSA's Importer RFI and customs data.
    
    
84. For purposes of the preliminary determination, the CBSA identified 9 benchmark products that comprise 21% and 15% of the total volume (pounds) and the total export price, respectively, of estimated imports from Korea during the POI. These 9 benchmark products were used to estimate the margin of dumping.
    
    
85. Normal values for the 9 benchmark products were estimated under paragraph 19(b) of the SIMA based on information provided by the complainant, with adjustments to reflect lower wages in Korea. GS&A expenses and the amount for profit were based on the public 2004 financial results for a Korean manufacturer.
    
    
86. In the final phase of the investigation, the CBSA will verify information provided by the exporter in order to determine normal values for all subject goods based on the information provided in the exporter's submission.
    
    

b) Export Price

87. Export prices for the benchmark products were determined using information provided by the exporter and importers in addition to customs data obtained during the preliminary phase of the investigation. The CBSA has verified this information based on information provided by customs documentation. As the goods were sold to unrelated importers in Canada, export prices were estimated based on the exporter's selling price, as described in subparagraph 24(a)(iii) of SIMA. Where the selling price included CIF (Cost, Insurance and Freight) charges, these charges were deducted from the exporter's selling price, pursuant to subparagraph 24(a)(iii) of SIMA.
    
    

c) Margin of Dumping

88. The normal values were compared with the export prices for the benchmark products and the margin of dumping is estimated to be 103% expressed as a percentage of the export price.
    
    
89. The estimated margin of dumping for exporters of goods originating in Korea that were not part of the CBSA's selection and were not requested to provide a response to the CBSA is based on the weighted average margin of dumping estimated for the cooperative exporter analyzed thus far during the investigation. The margin of dumping has been estimated to be 103%, expressed as a percentage of the export price.
    
    
90. The estimated margin of dumping for exporters of goods originating in Korea that were part of the CBSA's selection and either did not respond to the CBSA's RFI, or provided an incomplete response, is based on the highest margin of dumping estimated for the cooperative exporter analyzed thus far during the investigation (excluding anomalies). The margin of dumping has been estimated to be 188%, expressed as a percentage of the export price.
    
    
91. The summary of results relating to the dumping investigation involving Korea reveals that approximately 99% of the volume of subject goods was dumped by an estimated weighted average margin of dumping of 138%, expressed as a percentage of the export price. The margins of dumping for the goods range from less than 1% to 188%, expressed as a percentage of the export price.
    
    

RESULTS OF THE DUMPING INVESTIGATION - CHINA

92. Of those selected exporters requested to provide a response to the CBSA's RFI, complete responses were received from 2 companies as follows:
    
    

    Company Name	Designation	Location
    Tianli Pipe Fitting Co. Ltd.	Producer	Zhejiang, China
    Zhuji City Howhi Air Conditioners Made Co., Ltd.	Producer	Zhejiang, China

    
    
    

a) Normal Value

93. Due to the fact that the analysis of all costing and selling price information received is continuing and that verification of the information has not yet taken place, the CBSA has not been able to establish a sufficient level of confidence in the costing information provided by exporters in order to estimate normal values and export prices for the preliminary determination.
    
    
94. In view of the fact that the responses received from the exporters in China have not been verified, the preliminary decision with respect to dumping is based on the facts available, specifically the normal values estimated for the initiation of the investigation.
    
    
95. For purposes of the preliminary determination, the CBSA identified 11 benchmark products that comprise 25% and 21% of the total volume (pounds) and the total export price, respectively, of known imports from China during the POI, as contained in the submissions provided by the two exporters and seven importers. These 11 benchmark products were used to estimate the margin of dumping.
    
    
96. Normal values for the 11 benchmark products were estimated under paragraph 19(b) of the SIMA based on information provided by the complainant, with adjustments to reflect lower wages in China, GS&A expenses based on the 2004 financial results for a Korean manufacturer and a nominal amount for profit equal to 5%, based on the amount estimated by the complainant.
    
    
97. Product information provided by the cooperative exporters and the cooperative importers were used to ensure that estimated normal values for the representative models selected by the complainant corresponded to the models identified by the exporters and the importers.
    
    
98. In the final phase of the investigation, the CBSA will attempt to gather and verify information required from exporters in order to determine normal values for all subject goods based on the information provided in the exporters' submissions.
    
    

b) Export Price

99. Export prices for the 11 benchmark products were determined using information provided by exporters and the importers during the preliminary phase of the investigation. The CBSA has verified this information based on information provided by customs documentation. As the goods were sold to unrelated importers in Canada, export prices were estimated based on the exporter's selling price, as described in subparagraph 24(a)(iii) of SIMA. Where the selling price included CIF (Cost, Insurance and Freight) charges, these charges were deducted from the exporter's selling price, pursuant to subparagraph 24(a)(iii) of SIMA.
    
    

c) Margin of Dumping

100. The normal values were compared with the export prices for the 11 benchmark products and the margin of dumping is estimated to be 39% expressed as a percentage of the export price.
     
     
101. The estimated margin of dumping for those exporters of goods originating in China that were not part of the CBSA's selection and were not requested to provide a response to the CBSA is based on the weighted average margin of dumping estimated for 11 benchmark products analyzed thus far during the investigation. The margin of dumping has been estimated to be 39%, expressed as a percentage of the export price.
     
     
102. The estimated margin of dumping for those exporters of goods originating in China that were part of the CBSA's selection and either did not respond to the CBSA's RFI, or provided an incomplete response, is based on the highest margin of dumping estimated for 11 benchmark products analyzed thus far during the investigation (excluding anomalies). The margin of dumping has been estimated to be 116%, expressed as a percentage of the export price.
     
     
103. The summary of results relating to the dumping investigation involving China reveals that approximately 97% of the volume of subject goods was dumped by an estimated weighted average margin of dumping of 110%, expressed as a percentage of the export price. The margins of dumping for the goods range from less than 1% to 116%.
     
     

SUMMARY OF RESULTS - DUMPING

* as a percentage of export price

104. Under Subsection 35(1) of SIMA, the President is required to terminate an investigation prior to the preliminary determination if he is satisfied that the margin of dumping of the goods of a country is insignificant or that the volume of dumped goods of a country is negligible. Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% is defined as insignificant, whereas a volume of dumped goods from a country forming less than 3% of total imports is considered negligible.
     
     
105. As shown in the table above, the estimated weighted average margin of dumping of subject goods from the United States, Korea and China is above 2% and is therefore not insignificant. As well, the volume of dumped goods from the United States, Korea and China is above 3%, and is therefore not negligible.
     
     

SUBSIDY INVESTIGATION

106. In accordance with SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex 1A to the WTO Agreement, that confers a benefit.
     
     
107. Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists where:
     
     
     • practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;
       
       
     • amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;
       
       
     • the government provides goods or services, other than general governmental infrastructure, or purchases goods; or
       
       
     • the government permits or directs a nongovernmental body to do any thing referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the nongovernmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.
       
       
108. If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidy. An "enterprise" is defined under SIMA as also including a "group of enterprises, an industry and a group of industries". A prohibited subsidy includes an export subsidy which is contingent, in whole or in part, on export performance or a subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.
     
     
109. Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether
     
     
     • there is exclusive use of the subsidy by a limited number of enterprises;
       
       
     • there is predominant use of the subsidy by a particular enterprise;
       
       
     • disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and
       
       
     • the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available
       
       
110. For purposes of a countervailing duty investigation, the CBSA refers to a subsidy that has been found to be specific as an "actionable subsidy" meaning that it is subject to countervailing measures if the imported goods under investigation have benefited from the subsidy.
     
     
111. Prior to the initiation of the investigation, the complainant submitted allegations that the subject goods from China are eligible for government programs that may constitute actionable subsidies.
     
     
112. In support of its allegations, the complainant provided a number of documents detailing support offered by the Government of China, primarily to exporting enterprises and to those operating in Special Economic Zones (SEZs), and identified various programs from previous CBSA subsidy investigations.
     
     
113. At initiation, the CBSA identified 36 potential subsidy programs in the following ten categories:
     
     
     1. Special economic zone (SEZ) incentives.
     2. Grants provided for export performance and employing common workers.
     3. Preferential loans.
     4. Loan guarantees by the GOC.
     5. Grants
     6. Income tax credits, refunds and exemptions:
        1. Reduced corporate tax rate for exportoriented enterprises.
        2. Exemption/reduction of corporate income tax during designated tartup period.
        3. Income tax refund of amounts further invested in Special Economic Zones.
        4. Exemption/reduction in local income tax for Special Economic Zone Enterprises.
     7. Relief from duties and taxes on materials and machinery.
     8. Reductions in land use fees.
     9. Purchase of goods from Stateowned Enterprises.
     10. Zhejiang Province - Strategic Plan for Local Copper Processing Industry.
     
     
     
114. Appendix 3 provides further details regarding the subsidy programs that were identified upon initiation of the investigation.
     
     
115. In conducting its investigation, the CBSA sent questionnaires to all selected exporters located in China and to the Government of China. These questionnaires requested information necessary to establish whether there had been financial contributions made by any level of government and, if so, to establish if a benefit had been conferred on persons engaged in the production, manufacture, processing, purchase, distribution, transportation, sale, export or import of the subject goods; and whether any resulting subsidy was specific in nature. The government of China was also requested to forward the questionnaires to all subordinate levels of government that had jurisdiction over the selected exporters.
     
     

RESULTS OF THE SUBSIDY INVESTIGATION

116. Responses to the CBSA's subsidy questionnaires were received from 2 companies located in China, as well as from the GOC.
     
     
117. For purposes of this investigation, "Government of China" refers to all levels of government, including federal, central, provincial/state, regional, municipal, city, township, village, local, legislative, administrative or judicial levels. Benefits provided by stateowned enterprises operating under the direct or indirect control or influence of the Government of China may also be considered to be provided by the Government of China for purposes of this investigation.
     
     
118. As noted above, the GOC provided a response to the subsidy questionnaire that was issued by the CBSA at the initiation of the investigation. The information originally submitted by the GOC was deemed to be incomplete and further information was requested.
     
     
119. Accordingly, the CBSA issued two supplementary RFIs to the GOC, in an effort to obtain complete information and to clarify the information received. Specifically, the CBSA requested the GOC respond to the questions with respect to all of the 15 exporters identified. The CBSA also requested further information on subsidy programs identified in the Special Economic Zone Incentives category and the Zhejiang Province's Strategic Plan for the Local Copper Processing Industry.
     
     
120. The GOC's response to the second SRFI resulted in the CBSA considering the GOC's response to the RFI to be complete. Because of the lateness of the information submitted, the CBSA did not undertake a verification of the information that had been submitted by the GOC and the exporters for purposes of the preliminary determination.
     
     
121. However, based on the CBSA's review of the information submitted by the GOC and the co operative exporters, the CBSA has determined that 7 of the programs under investigation are not applicable. As such, the following programs will not be investigated further by CBSA in the next phase of the investigation:
     
     
     • Preferential tax policies for enterprises with foreign investment established in Pudong area of Shanghai;
       
       
     • Preferential tax policies for enterprises with foreign investment established in the Three Gorges of Yangtze River Economic Zone;
       
       
     • Preferential tax policies in the Western regions;
       
       
     • Preferential loans provided to qualified smallsized enterprises;
       
       
     • Development fund for SMEs;
       
       
     • Grants from Development Zone Committees Under the Authority of Town Governments; and
       
       
     • Grants Provided to Companies Newly Established in the Pudong New Area of Shanghai.
       
       
122. Four of the programs identified above involve locationspecific programs and have been removed by the CBSA because none of the exporters shipping the subject goods are located in these specific regions. The other three programs identified above have been removed because they have been determined not to be specific in accordance with subsection 7.1 of SIMA. A summary of the preliminary findings relating to all of subsidy programs identified at the time of the initiation of the investigation can be found in Appendix 4.
     
     

Estimated Amount of Subsidy

123. Due to the fact that the analysis of all information received is continuing and that verification of the information has not yet taken place, the CBSA is presently unable to calculate specific subsidy amounts for each exporter on a per program basis. As such, the CBSA has used the facts available in estimating an amount for subsidy for purposes of the preliminary determination. The amount of subsidy was estimated by comparing the average export prices of the subject goods as established by the CBSA with their respective costs of production i.e. raw material and processing cost, based on the information provided by Cello within its complaint.
     
     
124. It was found that 88% of the goods exported were subsidized. The estimated weighted average amount of subsidy is equal to 17%, expressed as a percentage of the export price. The amounts of subsidy for the goods range from 6% to 68%.
     
     
125. For the 2 exporters that provided a response to the CBSA's subsidy RFI, the CBSA has estimated an overall weighted average amount of subsidy equal to 17% of the export price based on the results for the 11 benchmark products.
     
     
126. For exporters that were part of the CBSA's selection and either did not respond, or provided an incomplete response, to the CBSA's subsidy RFI, the CBSA has estimated the highest amount of subsidy of the 11 benchmark products, which is equal to 68% of the export price.
     
     
127. For those exporters not included in the CBSA's selection and not requested to respond to the CBSA's subsidy RFI, the CBSA has estimated an overall weighted average amount of subsidy equal to 17% of the export price.
     
     
128. The CBSA has estimated the amount of subsidy available to exporters in China to be 64% of the export price. The estimated amount was determined by comparing the average export prices of the subject goods as established by the CBSA with their respective costs of production i.e. raw material and processing cost, based on the information provided by Cello within its complaint.
     
     

SUMMARY OF RESULTS - SUBSIDY

129. Under subsection 35(1) of SIMA, the President is required to terminate an investigation prior to the preliminary determination if the amount of subsidy on the goods of a country is insignificant or if the volume of subsidized goods of a country is negligible. Section 41.2 of SIMA further requires the President to take into account the provisions of Article 27 of the WTO Subsidies Agreement when conducting subsidy investigations. These provisions stipulate that any investigation involving a developing country must be terminated as soon as it is determined that the total amount of subsidy for a developing country does not exceed 2% of the value of the goods, or that the volume of the subsidized imports represents less than 4% of the total imports of subject goods. For developed countries, less than 1% of the value of the goods is considered insignificant, whereas a volume of subsidized goods forming less than 3% of total imports is considered negligible.
     
     
130. The CBSA normally makes reference to Part I of the “DAC”⁵ List of Aid Recipients, maintained by the Organization for Economic Cooperation and Development, to determine eligibility for the differential amounts for developing countries in subsidy investigations.  According to this list, China is eligible for the higher insignificance and negligibility thresholds. The table above illustrates that the estimated amount of subsidy respecting China is not insignificant, nor is the volume of subsidized goods negligible.
     
     

REPRESENTATIONS CONCERNING THE INVESTIGATION

Mueller Industries, Inc. (Mueller):

131. On August 3, 2006, the CBSA sent a letter to counsel for Mueller indicating reasons why Mueller's response to the RFI was not adequate for making determinations on dumping. In response, Mueller provided some of the outstanding information, but the response was not complete.
     
     
132. On August 10, August 19, and October 4, 2006, the CBSA received written representations from counsel on behalf of Mueller. In these representations, counsel for Mueller argued that the CBSA should use certain alternative methods to estimate Mueller's cost of production of the subject goods and the like goods sold domestically. Counsel for Mueller designated the details of its arguments as confidential.
     
     
133. The CBSA has evaluated the arguments presented by counsel for Mueller, however, for purposes of the preliminary determination, the CBSA found that the outstanding information is necessary to estimate normal values for Mueller, and therefore the information submitted by Mueller in response to the RFI is inadequate for making determinations on dumping.
     
     

Government of China:

134. In its response to the original Government RFI, the GOC included written representations with respect to the CBSA's subsidy investigation and the subsidy programs under investigation.
     
     
135. The GOC has stated that the evidence of subsidization and injury is insufficient and the subsidy investigation should be terminated.
     
     
136. The GOC has stated the programs subject to the investigation are neither actionable nor prohibited subsidies as defined in SIMA or under the SCM Agreement of WTO. The GOC argued that certain programs are nonactionable because they are not specific and the nature of the program itself.
     
     
137. The GOC has stated that certain programs should be excluded from the investigation, as there are no such programs or benefits in existence. The GOC further states that one cannot infer that an enterprise is providing a subsidy because of its status as a stateowned enterprise (SOE). According to the GOC, SOEs operate independently and are autonomous.
     
     
138. The GOC claims that China's notification of certain programs to the WTO does not demonstrate the specificity of the notified programs and should not be the basis for the initiation of the subsidy investigation and the ruling of specificity.
     
     
139. The GOC also provided representations concerning the Zhejiang Economic and Trade Commission's Strategic Plan for the Local Copper Processing Industry. The GOC argued that the Strategic Plan is intended to support the copper processing industry and not the metal manufacturing industry, to which the copper pipe fittings industry belongs. The GOC also stated that the Strategic Plan follows the direction of the market and does not provide any substantive or operative benefit.
     
     
140. With respect to FIEs, the GOC argues that FIEs do not constitute an "enterprise", as defined in section 2 of SIMA, because they are involved in many different industries and manufacturing sectors. Consequently, the GOC argues that subsidy programs for FIEs should not be considered specific and, therefore, would be nonactionable.
     
     
141. The GOC has also stated that all of the programs are publicly available and available to any company that meets the eligibility criteria. The GOC further states that the programs are objective in terms of eligibility and amount of entitlement; set out in legislative, regulatory, administrative, or other public instruments; and not limited to certain enterprises. The GOC also maintains that, according to article 2 of the SCM Agreement, the setting of generally applicable tax rates is not considered to be a specific subsidy.
     
     
142. The GOC has also stated that none of the programs meet the deemed specificity of subsection 2(7.3) of SIMA, i.e., there is no exclusive use of any programs by a limited number of enterprises; no predominant use of any of the programs by particular enterprises; no disproportionately large amount of any benefit being granted to a limited number of enterprises; and no exercise of discretion indicating that any of the programs are not generally available.
     
     
143. Finally, the GOC has stated that nine of the ten programs have been investigated by the CBSA in the past and it places an unreasonable burden on the GOC to have to respond to the same requests for information each time.
     
     
144. The CBSA is currently evaluating the original and supplemental subsidy responses received from the GOC and the Chinese exporters. Onsite verification of the two cooperating exporters and the GOC is scheduled to be held after the preliminary determination. Consequently, the CBSA will take the GOC's arguments into consideration for the final decision.
     
     

DECISION

145. Based on the preliminary results of the investigation, on October 20, 2006, the President of the CBSA made a preliminary determination of dumping respecting certain copper pipe fittings originating in or exported from the United States of America, the Republic of Korea and the People's Republic of China, and made a preliminary determination of subsidizing respecting certain copper pipe fittings originating in or exported from People's Republic of China, pursuant to subsection 38(1) of SIMA.
     
     

PROVISIONAL DUTY TO BE IMPOSED

146. In light of the preliminary determination of injury made by the CITT and to prevent further injury from dumped and subsidized imports, provisional duties will be imposed on all subject goods imported into Canada from the United States of America, the Republic of Korea and the People's Republic of China pursuant to subsection 8(1) of SIMA. Provisional duty will be applied to dumped and subsidized subject goods that are released during the provisional period commencing on the day the preliminary determination is made, and ending on the earlier of the day on which the President causes the investigation to be terminated pursuant to subsection 41(1) or the day on which the CITT makes an order or finding.
     
     
147. The provisional antidumping duty is based on the estimated margins of dumping, expressed as a percentage of the export price of the goods. Provisional countervailing duty is also expressed as a percentage of the export price of the goods. Appendix 2 contains the estimated margins of dumping, estimated amounts of subsidy, and the rates of provisional duty, payable on subject goods released from Customs on and after October 20, 2006.
     
     
148. Importers are required to pay provisional duty in cash or by certified cheque. Alternatively, they may post security equal to the amount payable. Importers should contact their regional customs office if they require further information on the payment of provisional duty or the posting of security. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in the customs documents, an administrative monetary penalty could be imposed. The imported goods are subject to the Customs Act. As a result, failure to pay duties within the specified time will result in the application of the provisions of the Act regarding interest.
     
     

FUTURE ACTION

The Canada Border Services Agency

149. The CBSA will continue its dumping and subsidy investigation respecting certain copper pipe fittings, and will make a final decision by January 18, 2007. During the second phase of the investigation, the CBSA will review any additional information received in a timely manner, to finalize the calculations of normal value, export price, and amount of subsidy.
     
     
150. If the President is satisfied that the goods were dumped and/or subsidized, and that the margin of dumping or amount of subsidy is not insignificant, a final determination will be made. Otherwise, the President will terminate the investigation and any provisional duty paid, or security posted, will be returned to the importers.
     
     
151. The following table outlines the schedule of future events in the CBSA's investigation:
     
     

     Date	Event
     November 20, 2006	Closing of Record Date
     November 27, 2006	Case Arguments due from all Parties
     December 4, 2006	Reply Submissions due from all Parties
     January 18, 2007	Final Determination / Termination of Dumping and/or Subsidy Investigation
     February 2, 2007	Statement of Reasons Issued

     
     
     

The Canadian International Trade Tribunal

152. The CITT has begun its full inquiry into the question of injury to the Canadian industry. The CITT is expected to issue its final decision by February 16, 2007.
     
     
153. If the CITT finds that the dumping or subsidizing has not caused injury or is not threatening to cause injury, the proceedings will be terminated and all provisional duties collected, or security posted, will be returned. If the CITT makes an affirmative decision, antidumping duty and/or countervailing duty will be imposed on imports of the subject goods.
     
     
154. For purposes of the preliminary determination of dumping or subsidizing, the President has responsibility for determining whether the actual and potential volume of dumped or subsidized goods is negligible. After a preliminary determination of dumping or subsidizing, the CITT assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the CITT is required to terminate its inquiry in respect of any goods if the CITT determines that the volume of dumped or subsidized goods from a country is negligible.
     
     

RETROACTIVE DUTY ON MASSIVE IMPORTATIONS

155. Under certain circumstances, antidumping and countervailing duty can be imposed retroactively on subject goods imported into Canada. When the Tribunal conducts its inquiry on material injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry. Should the Tribunal issue a finding that there were recent massive importations of dumped and/or subsidized goods that caused injury, imports of subject goods released by the CBSA in the 90 days preceding the day of the preliminary determination could be subject to antidumping and/or countervailing duty.
     
     
156. In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the President has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy. In such a case, the amount of countervailing duty applied on a retroactive basis will equal the amount of subsidy on the goods that is a prohibited subsidy.
     
     

UNDERTAKINGS

157. After a preliminary determination of dumping, exporters may give a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. Similarly, after a preliminary determination of subsidizing, the government of a country may give a written undertaking to eliminate the subsidy on the goods or to eliminate the injurious effect of the subsidy by limiting the amount of the subsidy or the quantity of goods exported to Canada. Exporters, with the consent of their government, may also undertake to revise their selling prices so that the injurious effect of the subsidy is eliminated.
     
     
158. Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped and subsidized goods. In the event that an undertaking is accepted, the required payment of provisional duty on the goods would be suspended.
     
     
159. In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determination of dumping and subsidizing (December 19, 2006). Further details regarding undertakings can be found in the CBSA’s Memorandum D1419, available online at:
     http://www.cbsa-asfc.gc.ca/E/pub/cm/d1419/d1419-e.html.
     
     
160. The legislation allows all interested parties to make representations concerning any undertaking proposals. The CBSA will maintain a list of interested parties and will notify them should an undertaking proposal be received. Persons wishing to be notified must provide their name, address, telephone, fax, or email address, to one of the officers listed below. Interested parties may also consult the CBSA Internet Web site noted below for information on undertakings offered in this investigation. A notice will be posted on the CBSA Web site when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.
     
     

PUBLICATION

161. A notice of this preliminary determination of dumping and subsidizing will be published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.
     
     

INFORMATION

162. This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the Directorate’s Web site at the address below. For further information, please contact Peter Dupuis and Jody Grantham as follows:
     
     

     Telephone:	Peter Dupuis 613-954-7341 Jody Grantham 613-954-7405
     Fax:	613-948-4844
     Email:	simaregistry@cbsa-asfc.gc.ca
     Mail:	Canada Border Services Agency AntiDumping and Countervailing Program Trade Programs Directorate 100 Metcalfe Street, 11th Floor Ottawa, Ontario  K1A 0L8 Canada
     Web site:	http://www.cbsa-asfc.gc.ca/sima

     
     
     

Darwin Satherstrom
Acting Director General
Trade Programs Directorate

1. R.S. 1985, c. S15.
2. ECD, DAC List of Aid Recipients - As of 1 January 2003, online: http://www.oecd.org/dataoecd/35/9/2488552.pdf
3. CBSA Exhibit 241 Clarification from Elkhart Products Ltd. (Canada) regarding import statistics as reported in CBSA Statement of Reasons for the first quarter of 2006, dated September 12, 2006
4. While the goods are properly classified under the applicable HS classification numbers identified above, the CBSA took into consideration HS classification numbers 7412.10.00.90 Other and 7412.20.00.90 Other, with the understanding that subject goods are on occasion misclassified. Importers are cautioned that declaring an incorrect HS code is subject to penalties under the CBSA's Administrative Monetary Penalty System (AMPS)
5. CBSA Exhibit 241 Clarification from Elkhart Products Ltd. (Canada) regarding import statistics as reported in CBSA Statement of Reasons for the first quarter of 2006, dated September 12, 2006

APPENDIX 1 LISTING OF COPPER PIPE FITTINGS UNDER INVESTIGATION

The following information is to be taken into consideration in identifying copper pipe fittings (subject goods) being investigated by the Canada Border Services Agency (CBSA):

1. The subject goods are identified in terms of imperial measurement, i.e. inches. The CBSA is also investigating subject goods that encompass the metric equivalents of the imperial measurement. The term metric equivalent refers to those fittings that are soft converted equivalents of the imperial sized fittings and does not include fittings made specifically in metric dimensions.
   
   
2. The subject goods are identified either as a wrought product or as a cast product. Where a subject good contains an asterisk (" * ") the CBSA is investigating both the wrought product and the cast product.
   
   
3. The subject goods are identified in terms of nominal size. Plumbing and heating fittings are marked according to nominal sizes that correspond to the inside diameters, while fittings for air conditioning and refrigeration are based on actual outer diameter sizes. The CBSA is also investigating subject goods that are described in terms of their outside diameter size. To determine the nominal size of a fitting that is measured in terms of it's outside diameter size, always subtract ?" from the outside diameter size.
   
   
4. The subject goods are identified using abbreviated terms provided by the complainant (Cello Products Inc.). The following is a list of the terms:
   
   

   Abbreviation Chart
   WP	Wrought Pressure	FTG	Fitting End (Street End)
   WD	Wrought Drainage	LT	Long Turn
   CP	Cast Pressure	MJ	Mechanical Joint
   CD	Cast Drainage	DE	Drop Ear
   C	Copper Tube Cupped End or Sweat End	DWV	Drainage, Waste, Vent
   M	Male NPT Thread	TY	90˚ Drainage Tee
   FE	Female NPT Thread	Y	45˚ Drainage Tee
   SJ	Slip Joint End

   
   
   

Subject Copper Pipe Fittings Female Adapters

Subject Copper Pipe Fittings Male Adapters

Subject Copper Pipe Fittings - Other Adapters

Subject Copper Pipe Fittings - Bushings

Subject Copper Pipe Fittings - Couplings

Subject Copper Pipe Fittings - Elbows

Subject Copper Pipe Fittings - Flanges

Subject Copper Pipe Fittings - Pressure Tees

Subject Copper Pipe Fittings - Unions

Subject Copper Pipe Fittings - PTraps

Subject Copper Pipe Fittings - DWV TY's

Subject Copper Pipe Fittings - DWV Y's

Subject Copper Pipe Fittings - Caps and Cleanouts

APPENDIX 2 ESTIMATED MARGIN OF DUMPING BY EXPORTER/COUNTRY

CERTAIN COPPER PIPE FITTINGS ESTIMATED MARGIN OF DUMPING BY EXPORTER/COUNTRY

1 As a percentage of export price
2 Weighted average margin estimated for cooperative exporters analysed for the preliminary determination.
3 Margin based on highest margin of dumping (excluding anomalies) estimated for the Preliminary Determination

CERTAIN COPPER PIPE FITTINGS ESTIMATED AMOUNTS OF SUBSIDY BY EXPORTER/COUNTRY

1 As a percentage of export price
2 Weighted average margin estimated for cooperative exporters analysed for the preliminary determination.
3 Margin based on highest amount of subsidy (excluding anomalies) estimated for the Preliminary Determination

APPENDIX 3 - DESCRIPTION OF IDENTIFIED PROGRAMS AND INCENTIVES AT INITIATION

1. SPECIAL ECONOMIC ZONE (SEZ) INCENTIVES

   In its recent WTO notification, China identified the following programs:

   X. Preferential tax policies for enterprises with foreign investment established in special economic zones (excluding Shanghai Pudong area)

   XI. Preferential tax policies for enterprises with foreign investment established in the costal economic open areas and in the economic and technological development zones

   XII. Preferential tax policies for enterprises with foreign investment established in Pudong area of Shanghai

   XIII. Preferential tax policies for enterprises with foreign investment established in the Three Gorges of Yangtze River Economic Zone

   XIV. Preferential tax policies in the Western regions

   It is also our understanding that the Government of China may provide various benefits and incentives to enterprises in China located within SEZs. The various benefits and incentives are outlined below:

   • Tariff exemptions on imported materials;
   • Reduction of corporate income tax;
   • Value Added Tax (VAT) exemptions;
   • Special land tax and land use exemptions;
   • Preferential costs of services and infrastructure provided by government bodies or stateowned enterprises;
   • Exemption/Reduction in Local Income tax for SEZ Enterprises; and
   • Income Tax Refund of Amounts Further Invested in SEZs.
   
   
   

2. GRANTS PROVIDED FOR EXPORT PERFORMANCE AND EMPLOYING COMMON WORKERS

   In its recent WTO notification, the Government of China identified the following program:

   XXIV. Preferential tax policies for enterprises which provide employment for unemployed people

   It is also our understanding that the Government of China may be providing grants to enterprises in China based upon export performance and the employment of common workers.

3. PREFERENTIAL LOANS

   There is information that the Government of China may be providing loans to enterprises in China at preferential interest rates and financing terms. These loans may be being made directly by the Government of China or indirectly via financial institutions in China.

4. LOAN GUARANTEES BY THE GOVERNMENT OF CHINA

   There is information that the Government of China may be providing loan guarantees to enterprises in China. These loan guarantees may be made directly by the Government of China or indirectly via financial institutions in China.

5. GRANTS

   In its recent WTO notification, China identified the following programs:

   XXXII.  Development funds for SMEs;

   XXXIII. Fund for international market exploration by SMEs;

   The CBSA has also identified other grants in its past investigations, specifically:

   1. Grants from Development Zone Management Committees Under the Authority of Town Governments;
   2. Grants Provided to Companies Newly Established in the Pudong New Area of Shanghai;

6. PREFERENTIAL INCOME TAX PROGRAMS:

   In its recent WTO notification, China identified the following programs:

   I. Preferential Tax Policies for ForeignInvested Enterprises;

   II. Preferential Tax Policies for ForeignInvested Export Enterprises;

   VI. Preferential tax policies for enterprises with foreign investment which are technology intensive and knowledgeintensive;

   VIII. Preferential tax policies for enterprises with foreign investment recognized as high or new technology enterprises established in the State high or new technology industrial development zones, and for advanced technology enterprises invested in and operated by foreign businesses;

   IX. Preferential tax policies for enterprises recognized as high or new technology enterprises established in the State high or new technology industrial development zones;

   XXIII. Preferential tax policies for township enterprises;

   XXVII. Preferential tax policies for the research and development of foreigninvested enterprises;

   LVIII. Preferential tax policies for foreign invested enterprises and foreign enterprises which have establishments or place in China and are engaged in production or business operations purchasing domestically produced equipments;

   LIX. Preferential tax policies for domestic enterprises purchasing domestically produced equipments for technology upgrading purpose;

7. RELIEF FROM DUTIES AND TAXES ON MATERIALS AND MACHINERY

   In its recent WTO notification, China identified the following programs:

   LX. Exemption of tariff and import VAT for the imported technologies and equipments;

   LXXV. Refund of import VAT of raw copper materials;

   LXXVI. Preferential tax treatment for casting and forging products;

   LXXVII. Preferential tax treatment to dies products;

   LXXVIII. Preferential tax treatment to numerically controlled machine tool products;

   There is information that the government of China may be providing relief from duties and taxes on inputs.

8. REDUCTION IN LAND USE FEES

   There is information that the government of China may be providing a reduction in land use fees to enterprises in China.

9. PURCHASE OF GOODS FROM STATEOWNED ENTERPRISES

   There is information that the government of China may be providing goods and/or services to enterprises in China. These goods and/or services may be being provided directly by the government of China or indirectly via stateowned enterprises.

10. ZHEJIANG PROVINCE - STRATEGIC PLAN FOR LOCAL COPPER PROCESSING INDUSTRY

    There is information that the Zhejiang Economic and Trade Commission may be providing benefits to manufacturers in the copper industry that are located in the Zhejiang Province by means of policy, tax and financial measures.

APPENDIX 4 - SUMMARY OF PRELIMINARY FINDINGS FOR NAMED SUBSIDY PROGRAMS

1. SPECIAL ECONOMIC ZONE (SEZ) INCENTIVES

   X. Preferential tax policies for enterprises with foreign investment established in special economic zones (excluding Shanghai Pudong area)

   General Information:

   This program is established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to absorb foreign investment, expand the openup policy and enhance development in Special Economic Zones (SEZs).

   The authority responsible for administering this program is the State Administration of Taxation of the PRC.  The local tax offices are responsible for implementing State policy and all relevant matters related to income tax assessment and collection, including examination and approval of applications relating to preferential tax treatment.

   Under this program, nonwholly foreign owned FIEs established in SEZs and FEs (wholly foreign owned FIEs) established in SEZs engaging in production or business operations shall pay income tax at a reduced rate of 15%.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The income tax reduction for FIEs under this program is provided for in Article 7 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any other companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria for this program can be found in Article 69 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   Article 69 defines SEZs as the SEZs of Shenzhen, Zhuhai, Shantou and Xiamen and the Hainan SEZ established by law or established upon approval of the State Council.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.

   XI. Preferential tax policies for enterprises with foreign investment established in the costal economic open areas and in the economic and technological development zones

   General Information:

   This program is established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991. This program was established in order to encourage foreign investment in Economic and Technical Development Zones (ETDZs) in open coastal cities and encourage some districts to take the lead in development. The authority responsible for administering this program is the State Administration of Taxation and local tax offices.

   Under this program, FIEs of a productive nature established in coastal economic open zones or in the old urban districts of cities where the SEZs or the ETDZs are located shall pay income tax at a reduced rate of 24%.

   FIEs established in coastal economic open zones or in the old urban districts of cities where the SEZs or the ETDZs are located or in any other regions defined by the State Council, who are engaged in activities relating to energy, communications, harbour, wharf or other projects encouraged by the State, may be levied at the reduced rate of 15%.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The income tax reduction for FIEs under this program is provided for in Article 7 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria for this program can be found in the following articles of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   Article 69 defines EDTZs as the economic and technological development zones in the coastal port cities established upon approval of the State Council.

   FIEs established in ETDZs that are eligible for preferential tax treatment under this program are located in the following ETDZ areas: Changchun, Wuhan, Haerbin, Nanchang, Changsha, Zhengzhou, Taiyuan, Hefei, Wuhu, Xi’an, Chongqing, Chengdu, Hohhot, Kunming, Nanning, Yinchuan, Guiyang, Shihezi, Urumchi, Lanzhou, Xining, Tianjin, Kunshan, Suzhou Industrial Park, Guangzhou, Jinqiao, Beijing, Nanjing, Dalian, Caohejing, Qingdao, Hangzhou, Ningbo, Yantai, Shenyang, Haichang Xiamen, Rongqiao Fuqing, Minhang, Fuzhou, Nansha, Xiaoshan, Nantong, Qinghuangdao, Yingkou, Wenzhou, Lianyungang, Weihai, Daxie Ningbo, Zhanjiang, Dayawai Huizhou, Yangpu Hainan, Dongshan and Hongqiao.

   Article 70 defines coastal economic open zones as "those cities, counties and districts established as coastal economic open zones upon approval of the State Council".

   FIEs of a productive nature are defined in Article 72 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises as FIEs engaged in the following industries:

   (a) Machine manufacturing and electronics industries;
   (b) Energy resource industries (not including exploitation of oil and natural gas);
   (c) Metallurgical, chemical and building material industries;
   (d) Light industries, and textiles and packaging industries;
   (e) Medical equipment and pharmaceutical industries;
   (f) Agriculture, forestry, animal husbandry, fisheries and water conservation;
   (g) Construction industries;
   (h) Communications and transportation industries (not including passenger transport);
   (i) Development of science and technology, geological survey and industrial information consultancy directly for services in respect of production and services in respect of repair and maintenance of production equipment and precision instruments;
   (j) Other industries as specified by the tax authorities under the State Council.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.

   XII. Preferential tax policies for enterprises with foreign investment established in Pudong area of Shanghai

   Given that none of the identified companies are located in the Pudong area of Shanghai, this program will no longer be considered for the remainder of the investigation.

   XIII. Preferential tax policies for enterprises with foreign investment established in the Three Gorges of Yangtze River Economic Zone

   Given that none of the identified companies are located in the Three Gorges of Yangtze River Economic Zone, this program will no longer be considered for the remainder of the investigation.

   XIV. Preferential tax policies in the Western regions

   Given that none of the identified companies are located in the Western regions, this program will no longer be considered for the remainder of the investigation.

   Program: Tariff Exemptions on Imported Materials

   General Information:

   This program is established in the Regulations on Special Economic Zones in Guangdong Province and approved for implementation on August 26, 1980. The program was established to absorb investment in SEZs and encourage districts to take the lead in development. The program is administered by the General Administration of Customs of the PRC and local customs authorities.

   Under this program, machinery and equipment, spare parts, raw and semiprocessed materials, means of transportation and other capital goods necessary for production that are imported by enterprises in special zones shall be exempted from import duties.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The import duty exemption is detailed in Article 13 of the Regulations on Special Economic Zones in Guangdong Province.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential treatment under this program during the POI. The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria are stated in Article 13 of the Regulations on Special Economic Zones in Guangdong Province.

   Any enterprise located in the special zones may receive the import duty exemption.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Import duty exemptions provided to enterprises in SEZs in Guangdong Province were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province.

   Program: Reduction of Corporate Income Tax

   General Information:

   This program is established in the Regulations on Special Economic Zones in Guangdong Province and approved for implementation on August 26, 1980. The program was established to absorb investment in SEZs and encourage districts to take the lead in development. The program is administered by the General Administration of Customs of the PRC and local customs authorities.

   Under this program, all eligible enterprises may receive a reduced corporate income tax rate of 15%.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The program is described under Article 14 of the Regulations on Special Economic Zones in Guangdong Province.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI. The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria can be found in Article 14 of the Regulations on Special Economic Zones in Guangdong Province. Special preferential treatment is given to enterprises established within two years of the promulgation of the Regulations on Special Economic Zones in Guangdong Province, to enterprises with an investment of US$5 million or more and to enterprises involving higher technology or having a longer period of capital turnover.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to enterprises in SEZs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of enterprises that meet the abovementioned eligibility criteria.

   Program: VAT Exemptions

   The GOC has stated that this program is not available in the SEZs. The CBSA will continue to investigate this potential subsidy program.

   Program: Special land tax and land use exemptions

   The GOC has stated that this program is not available in the SEZs. The CBSA will continue to investigate this potential subsidy program.

   Program: Preferential costs of services and infrastructure provided by government bodies or stateowned enterprises

   The GOC has stated that this program is not available in the SEZs. The CBSA will continue to investigate this potential subsidy program.

   Program: Exemption/Reduction in Local Income Tax for SEZ Enterprises

   General Information:

   This program is established in the Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, which was promulgated on April 9, 1991 and came into force on July 1, 1991.  This program was established to provide preferential tax treatment to FIEs to accelerate development of the local economy.  The program is administered by the State Administration of Taxation and local tax authorities.

   Under this program, any enterprise with foreign investment that operates in an industry or undertakes a project encouraged by the State may receive an exemption or reduction in local income taxes at the discretion of the relevant provincial, autonomous region or municipality under the Central Government.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The program is described under Article 9 of the Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria can be found in Article 9 of the Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The program is only available to enterprises with foreign investment that are operating in an encouraged industry or project, that is those enterprises identified in the “Current Catalog of Key Industries, Products and Technologies the Development of Which is Encouraged by the State (Revised in 2000)”.

   Based on the CBSA’s review of the Catalog, the copper pipe fittings industry is not an encouraged industry and this subsidy program would not be applicable. 

   Program:  Income Tax Refund Of Amounts Further Invested In SEZs

   General Information:

   Hainan SEZ

   This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise for foreign investors in Hainan SEZ.  This program was established to encourage foreign investors to reinvest profits into infrastructure projects and agriculture development enterprises in the Hainan SEZ.  The authority responsible for administering this program is the State Administration of Taxation and the local tax authorities. Under this program, profits of foreign investors earned from enterprises established in the Hainan SEZ that are directly reinvested in the Hainan SEZ into infrastructure projects and agriculture development enterprises for which enterprise income tax has already been paid on the reinvested amount may have 100% of the amount refunded. 

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The income tax reduction for foreign investors in Hainan SEZ is provided for in Article 10 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Articles 80, 81 and 82 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   In order for a foreign investor to obtain this preferential tax treatment, 100% of the shares of the foreign investor enterprise must be foreign owned and located outside the PRC. Therefore, foreignfunded enterprises inside the PRC that act as investors in other enterprises will not be considered foreign investors for the purposes of preferential treatment under this program.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to foreign investors obtaining profits from the Hainan SEZ were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province.

   Program:  SEZs in Guangdong Province

   General Information:

   This program was established in the Regulations on Special Economic Zones in Guangdong Province on August 26, 1980.  This program was established to encourage investors to reinvest profits into businesses in the SEZs in Guangdong Province.  The authority responsible for administering this program is the State Administration of Taxation.  The local tax offices are responsible for implementing State policy and all relevant matters related to income tax assessment and collection, including examination and approval of applications relating to preferential tax treatment.

   Under this program, investors that reinvest their profits derived in the SEZs in Guangdong for a period of five years or longer may apply for a reduction of or an exemption from income tax on the reinvested portion. 

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The income tax reduction for investors in SEZs in Guangdong is provided for in Article 16 of the Regulations on Special Economic Zones in Guangdong Province.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is available to any investors that reinvest their share of the profit in the special zones for a period of five years or longer, according to Article 16 of the Regulations on Special Economic Zones in Guangdong Province.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to enterprises located in SEZs in Guangdong were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Regulations on Special Economic Zones in Guangdong Province. 

2. GRANTS PROVIDED FOR EXPORT PERFORMANCE AND EMPLOYING COMMON WORKERS

   Program:  Exemption of Income Tax for Employing Unemployed People

   General Information:

   This program was established in the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi [94] No. 1 of 1994.This program was established to increase and encourage employment by encouraging newlyestablished labour employment service enterprises in cities or towns that employ unemployed people.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. 

   Under this program, the income tax of the newly established labour employment service enterprises may be exempted for three years if they employ unemployed people over sixty percent of total employees within the year.  For the aforementioned enterprises that newly employ unemployed people over thirty percent of original total employees, the income tax payable may be reduced by one half for an additional two years after the threeyear period. 

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The income tax exemption and reduction for newly established labour employment service enterprises that employ unemployed people is provided for in Article I (vii) of the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi [94] No. 1 of 1994.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria can be found in the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi [94] No. 1 of 1994.

   The GRPC defines a newly established labour employment service enterprise as a totally new enterprise and would not include enterprises that have been reorganized or formerly belonging to an integrated company or one that has changed its name.

   These enterprises also must reach the aforementioned employment percentages to obtain the exemptions and reductions of income tax.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to newly established labour employment service enterprises that employ unemployed people were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi [94] No. 1 of 1994. 

   Program:  Grants Provided for Export Performance

   The GOC has stated that this program is not available.  The CBSA will continue to investigate this potential subsidy program.

3. PREFERENTIAL LOANS

   General Information:

   This program was established in the Circular of People’s Bank of China, Ministry of Finance, Ministry of Labour and Social Security on Improving and Consummating Policy of Small Sum Guaranteed Loans (Yin Fa No. 5 of 2006), Circular of People's Bank of China, Ministry of Finance, Ministry of Labour and Social Security on Pushing Forward Operation of Small Sum Guaranteed Loans (Yin Fa No. 51 of 2004), and the Circular of People's Bank Of China, Ministry of Finance, Ministry of Labour and Social Security on Pushing Forward Operation of Small Sum Guaranteed Loan for the Unemployed, Financial Support Policy for the Operation and Detailed Implement Opinions (Cai Jin No. 66 of 2004).

   This program was established to increase and encourage the reemployment of the unemployed people by encouraging banks to provide loans for the small enterprises that employ unemployed people.  The program is administered by the People’s Bank of China, Ministry of Finance, Ministry of Labour and Social Security and is implemented by their respective local authorities, all stateowned commercial banks and shareholding commercial banks.

   Under this program, qualified smallsized enterprises may receive a fifty percent discount on the basis of loan benchmarks (not including the part of floating interest rate) set forth by the People's Bank of China.  The term will not exceed 2 years and the credit line should not exceed 1 million RMB.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The preferential loans for qualified smallsized enterprises is provided for in Article II of the Circular of People’s Bank of China, Ministry of Finance, Ministry of Labour and Social Security on Improving and Consummating Policy of Small Sum Guaranteed Loans (Yin Fa No. 5 of 2006) and Articles I, II, III, IV, V, and VI of the Circular of People's Bank Of China, Ministry of Finance, Ministry of Labour and Social Security on Pushing Forward Operation of Small Sum Guaranteed Loan for the Unemployed, Financial Support Policy for the Operation and Detailed Implement Opinions (Cai Jin No. 66 of 2004) and Article II of the Circular of People's Bank of China, Ministry of Finance, Ministry of Labour and Social Security on Pushing Forward Operation of Small Sum Guaranteed Loans (Yin Fa No. 51 of 2004).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria can be found in Articles I and II of the Circular of People’s Bank of China, Ministry of Finance, Ministry of Labour and Social Security on Improving and Consummating Policy of Small Sum Guaranteed Loans (Yin Fa No. 5 of 2006).

   This program is available to qualified smallsized enterprises with newly added posts to new employees who have “Favored Proof for Reemployment” from the Labour and Social Security departments and the number of such new employees reached 30% of the total employees of the enterprises and the enterprises signed labour contracts with them for more than 1 year term.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential loans provided to qualified smallsized enterprises were not found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA.  This particular program will not be considered in the next phase of the investigation.

4. LOAN GUARANTEES BY THE GOVERNMENT OF CHINA

   The GOC has stated that these do not exist and provided “The Guarantee Law of the PRC” to support its position. The CBSA will continue to investigate this potential subsidy program.

5. GRANTS

   Program:  Development Funds for SMEs

   General Information:

   This program was established in the Law of the PRC on the Promotion of Small and MediumSized Enterprises, which was promulgated on June 29, 2002 and came into force on January 1, 2003.

   This program was established to promote the development of small and mediumsized enterprises (SMEs).  The program is administered by the Ministry of Finance and the National Development and Reform Commission with local administrative departments of SMEs and financial departments at provincial levels implementing the policy within their respective jurisdictions.

   Under this program, qualified SMEs may receive support for the following activities:

   • Assistance and service for the initiation of business;
   • Support for establishment of the credit guarantee system for SMEs;
   • Support for technology innovations;
   • Encouragement of specialized development and cooperation with large enterprises;
   • Support for staff training and information consultancy by SME service agencies;
   • Support for development of international market by SMEs;
   • Support for clean production by SMEs; and
   • Other matters.

   Financial support is provided in the form of either free grants or loan interest discounts.  Generally, enterprises that have used selfowned capital to establish the business will receive grants and those enterprises that have used debt to finance the business will receive the loan interest discounts. 

   For grant recipients, the maximum amount of the special funds to be conferred freely to one project shall be no more than RMB 2 million and the amount of the grants will not exceed the enterprise’s own invested capital. 

   For loan interest discount recipients, the period of each project enjoying the interest discount should be no longer than 2 years; and the total amount each project receives in the form of interest discount should be no more than RMB 1.5 million.

   The amount of the special funds to be conferred in the form of loan interest discount will be determined according to the amount of the concerned loan and the loan interest rate in the same time published by the People’s Bank of China.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The grants and loan interest discounts available to qualified SMEs are provided for in Articles 10 through 12 of the Law of the PRC on the Promotion of Small and MediumSized Enterprises and the Circular of the Ministry of Finance and the national Development & Reform Commission Concerning the Transmission of the Interim Measures for Administration of Special Development Funds of SMEs (Cai Qi [2004] No. 185.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria can be found in the Circular of the Ministry of Finance and the national Development & Reform Commission Concerning the Transmission of the Interim Measures for Administration of Special Development Funds of SMEs (Cai Qi [2004] No. 185.

   This program is only available to qualified SMEs.  Enterprises are classified as SMEs based on the following criteria:

   • Number of employees;
   • Sales value of the enterprise;
   • Total assets of the enterprise; and
   • Relevant characteristics of the industry

   The GOC has stated that four of the fifteen identified companies are SMEs.

   The SMEs must demonstrate the following to apply for grants or loan interest discounts:

   • Set up of the standard corporate governance;
   • Established a solid financial management system;
   • Recorded the sound profit performance; and
   • Maintained the sound accounting record and tax payment record

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Grants and loan interest discounts provided to qualified SMEs were not found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA.  This particular program will not be considered in the next phase of the investigation.

   Program:  Funds for International Market Exploration by SMEs

   General Information:

   This program was established in the Circular of the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation Concerning Printing and Distributing the measures for the Administration of International Market Developing Funds of SMEs (for Trial Implementation) Cai Qi No. 467 of 2000, which was promulgated and came into force on October 24, 2000 and the Rules for Implementation of the Measures for Administration of International Market Developing Funds of SMEs (trial implementation).

   This program was established to support the development of SMEs, to encourage SMEs to join in the competition of international markets, to reduce the business risks of the enterprises, and to promote the development of the national economy. 

   The program is administered by the foreign trade and economic departments and the financial departments at all levels.  The market developing funds are divided into two parts: one for central use and the other for local use.

   Under this program, SMEs that submit applications for project funds plans, applications for project implementation and applications for project funds appropriation respectively during three different phases, together with relevant materials requested by the laws and regulations may receive funding for the projects.

   The projects applied for are for the purpose of: (i) holding or participating in overseas exhibitions, (ii) accreditation fee for quality management system, environment management system or for the product, (iii) promotion in the international market, (iv) exploring a new market, (v) holding trainings and symposiums, (vi) overseas bidding.

   The funds given to each project shall not be more than RMB 300,000 at the most. In case of organization project application, the funds given to each project shall not be more than RMB 3 million at the most.  The support proportion of market developing funds shall not exceed 50% of the amount the supported project needs in principle.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The international market development fund available to qualified SMEs is provided for in the Circular of the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation Concerning Printing and Distributing the measures for the Administration of International Market Developing Funds of SMEs (for Trial Implementation) Cai Qi No. 467 of 2000 and the Rules for Implementation of the Measures for Administration of International Market Developing Funds of SMEs (trial implementation).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   The eligibility criteria can be found in Articles 5 and 6 of the Circular of the Ministry of Finance, the Ministry of Foreign Trade and Economic Cooperation Concerning Printing and Distributing the measures for the Administration of International Market Developing Funds of SMEs (for Trial Implementation) Cai Qi No. 467 of 2000.

   Enterprises applying for funds from the international market development fund must meet the following criteria:

   • Qualification of enterprise as legal person according to law and having the power to manage the import and export businesses;
   • Customs statistics of export value of the enterprise of last year is 15,000,000 dollars or less and the enterprise has sound financial management system and good financial management records; and
   • Having the employees who specialize in foreign trade and economic businesses and who possess the basic skills of foreign trade and economic and having definite work arrangements and market developing plans.

   Furthermore, the enterprises must meet the following requirements:

   • Carrying out the strategy of market diversity to open up the new and emerging international markets;
   • Carrying out the strategy of developing the trade by science and technology, helping the SME acquire the international standard certification, and helping the high and newtech enterprises and enterprises of mechanical and electrical products export open up the international markets;
   • Having obtained the certification of quality administrative system, the certification of environmental administrative system and the product certification;
   • More than 70% of the components of the products are homemade; and
   • The products possess independent intellectual property.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The international market development fund is considered to be an export subsidy pursuant to paragraph 2(1) of SIMA, as it is contingent, in whole or in part, on export performance.

   Program:  Grants From Development Zone Committees Under The Authority Of Town Governments

   The GOC has stated that this program was never promulgated in any legislation that would authorize the Development Zone Management Committees of Town Governments to give grants.

   This program was found during the CBSA’s laminate flooring investigation and was specific to a particular company.  It will not be considered in the next phase of the investigation.

   Program:  Grants Provided to Companies Newly Established in the Pudong New Area of Shanghai

   Given that none of the identified companies are located in the Pudong area of Shanghai, this program will no longer be considered for the remainder of the investigation.

6. PREFERENTIAL INCOME TAX PROGRAMS

   Program:  Preferential Tax Policies for FIEs

   Reduced Tax Rate for Productive FIEs Scheduled to Operate for a period not less than 10 Years

   General Information:

   This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991.

   This program was established in order to encourage foreign investment.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities. 

   Under this program, from the year an FIE begins to make a profit, they may apply for and receive an exemption from income tax in the first and second years and a 50% reduction in the third, fourth, and fifth years of profitable operation. Should an FIE cease operation following a period of less than 10 years, that enterprise will be responsible for repaying the amount of tax that has been reduced or exempted under this program.

   If the FIEs business license prescribes a scope that encompasses both business of a productive nature and of a nonproductive nature, the FIE may only apply for and receive benefits under this program in years where the income from productive business exceeds 50% of its total income.  Should the scope of the FIE not include business of a productive nature in the scope prescribed by its business license, it may not receive benefits under this program under any circumstance, regardless if it has productive business income that exceeds 50% of total income.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The income tax reduction and exemption for FIEs under this program is provided for in Article 8 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.  The program is administered in accordance with the Rules for the Implementation of the Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA has identified at least one uncooperative exporter may have received benefits through this program.  It will continue to assess whether any other companies have received preferential treatment under this program.

   Eligibility Criteria:

   As noted above, FIEs of a productive nature are eligible for this program as long as they are scheduled to operate for a period not less than ten years. FIEs of a productive nature are defined in Article 72 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises as FIEs engaged in the following industries:

   (a) Machine manufacturing and electronics industries;
   (b) Energy resource industries (not including exploitation of oil and natural gas);
   (c) Metallurgical, chemical and building material industries;
   (d) Light industries, and textiles and packaging industries;
   (e) Medical equipment and pharmaceutical industries;
   (f) Agriculture, forestry, animal husbandry, fisheries and water conservation;
   (g) Construction industries;
   (h) Communications and transportation industries (not including passenger transport);
   (i) Development of science and technology, geological survey and industrial information consultancy directly for services in respect of production and services in respect of repair and maintenance of production equipment and precision instruments;
   (j) Other industries as specified by the tax authorities under the State Council.

   For further clarification regarding the definition of enterprises with a productive nature, the GOC provided the following supplemental definition:

   "Enterprise(s) with foreign investment which specialize in the sales business by purchasing commodities to carry out simple assembly, separate loading, packaging, cleaning, selecting and arranging and which do not change the forms, properties and components of the original commodities all belong to engaging in the commodity sales business and should not be designated as productive enterprise with foreign investment".

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.

   Program:  Reinvestment of Profits by Foreign Investor

   This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991.  This program was established in order to encourage foreign investors to re‑invest profits into businesses in the PRC.  The authority responsible for administering this program is the State Administration of Taxation and the local tax offices.

   Under this program, foreign investors who reinvest their profits received from an FIE back into that FIE by increasing its registered capital, or use their FIE derived profit to establish another FIE which is planned to operate for a period not less than five years, are eligible to receive a refund of the income tax already paid on the profit that was reinvested.

   Article 10 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises clearly identifies that any foreign investors who directly reinvest their aftertax profit into the organization from which they received the profit from, or use the profits to establish a new foreign enterprise, will be refunded 40% of the tax paid on the profit amount directly reinvested.  Further, if the direct reinvestment is in a new foreign enterprise and the investor withdraws the investment before five years have passed, the tax refunded must be repaid.  It also states that should State Council pass regulations relating to the provision of this preferential treatment, the provisions of those regulations will be applied.

   Article 80 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises refers to "direct reinvestment" as using the profits referred to above, prior to their receipt, to increase registered capital in the FIE who provided the profits, or, following receipt of those profits, establishing another FIE.

   Article 81 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprisesaddresses the preferential provisions passed by State Council, as referred to above.  It states that where a foreign investor directly reinvests profits to establish or expand exportoriented enterprises or advanced technology enterprises, 100% of the income tax paid on the reinvested profit will be refunded.

   Legal Basis:

   The income tax reduction for FIEs under this program is provided for in Article 10 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Articles 80, 81 and 82 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   In order for a foreign investor to obtain this preferential tax treatment, 100% of the shares of the foreign investor enterprise must be foreignowned and located outside the PRC. Therefore, foreignfunded enterprises inside the PRC that act as investors in other enterprises will not be considered foreign investors for the purposes of preferential treatment under this program.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to FIEs were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises. In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.

   Program:  Preferential Tax Policies for ForeignInvested Export Enterprises

   General Information:

   This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991.  This program was established to expand foreign economic cooperation.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, exportoriented enterprises invested in and operated by foreign businesses may pay a reduced income tax rate of 15% if their annual output value of all export products amounts to 70% or more of the output value of the products of the enterprise for that year.  Exportoriented enterprises in the SEZs and economic and technological development zones and other such enterprises subject to enterprise income tax at the tax rate of 15% that qualify under the abovementioned conditions shall pay enterprise income tax at the tax rate of 10%.

   Legal Basis:

   The income tax reduction for foreigninvested export enterprises under this program is provided for in Article 8 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Article 75.7 of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   To obtain this preferential tax treatment, 70% of the sales of the foreign business must be for export. 

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to foreigninvested export enterprises were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.  In addition, the CBSA believes that the subsidy is an export subsidy, as defined in paragraph 2(1) of SIMA, as it is contingent, in whole or in part, on export performance.

   Program:  Preferential tax policies for enterprises with foreign investment which are technologyintensive and knowledgeintensive

   General Information:

   This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991.  This program was established to further utilize foreign capital, introduce foreign advanced technology and equipment and accelerate industry structural adjustment.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, productionoriented enterprises with foreign investment established in the coastal economic open zones, SEZs, and in the old urban districts of municipalities where economic and technological development zones are located and which are engaged in technologyintensive and knowledgeintensive projects, may receive a reduced income tax rate of 15%.

   Legal Basis:

   The income tax reduction for productionoriented enterprises with foreign investment under this program is provided for in Article 7 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Article 73(1)(a) of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   As stated previously, this program is limited to productionoriented enterprises with foreign investment established in the coastal economic open zones, SEZs, and in the old urban districts of municipalities where economic and technological development zones are located and which are engaged in technologyintensive and knowledgeintensive projects.

   According to the Circular of the State Administration of Taxation Concerning the Tax Preferential Policy Applicable to Enterprises with Foreign Investment with Regard to TechnologyIntensive and KnowledgeIntensive Projects Guo Shui Fa [2003] No. 135, technologyintensive and knowledgeintensive projects are those involving leading products listed in the China Catalogue of High and New Technological Products (promulgated in 2000), promulgated by the Ministry of Science and Technology (formerly known as Commission of Science and Technology).  The income from the sales of the leading products for the year must be more than 50% of the total income from sales of all products of the enterprise for the same year.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Preferential tax rates provided to productionoriented enterprises with foreign investment were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.  In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.

   Program:  Preferential tax policies for enterprises with foreign investment recognized as high or new technology enterprises established in the State high or new technology industrial development zones, and for advanced technology enterprises invested in and operated by foreign businesses

   General Information:

   This program was established in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprise, which was promulgated on April 9, 1991, and came into effect on July 1, 1991.  This program was established to encourage high and new technology industrial development and enhance the technology progress.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, enterprises with foreign investment that meet the eligibility criteria described below and that are scheduled to operate for more than 10 years will be exempt from enterprise income tax in the first and second year, beginning with the first profitmaking year.

   Advanced technology enterprises with foreign investment may pay a reduced income tax rate of 15% for three years, following the first two years of exemption.

   Legal Basis:

   The income tax exemption for FIEs under this program is provided for in Article 8 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises and is administered in accordance with Article 75(6) of the Rules for the Implementation of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to Chineseforeign equity joint ventures recognized as high or new technology enterprises and established in the Stated high or new technology industrial development zones designated by the State Council.

   High or new technology enterprises must meet the following requirements:

   1. They are engaging in the research, development, production and technical service of one or more high technologies within the following categories of high and new technology and their products:

      (i) Electron and information technology;
      (ii)Biological engineering and new medicine technology;
      (iii)New materials and their application technology;
      (iv) Advanced manufacturing technology;
      (v) Aviation and space technology;
      (vi) Modern agricultural technology;
      (vii) New energy resources and high efficient energy conservation technology;
      (viii) Environmental protection new technology;
      (ix) Ocean engineering technology;
      (x) Nuclear application technology;
      (xi) Other new process or new technology applicable in the reconstruction of the traditional industries.

      However, sole trade of such technologies and products thereof are excluded.

   2. They are legal persons.
   3. The person in charge of the enterprises shall be the full time personnel of the enterprises who are familiar with the research, development, production and operation of the products in their enterprises and pay important attention to the technological innovation.
   4. Technical personnel with college and higher level education shall account for 30% and more of all the staffs of the enterprises; technical personnel engaged in the research and development of high and new technology products shall account for 10% and more of all the staffs of the enterprises. For those labourintensive high and new technology enterprises engaging in the production or service of high and new technology products, technical personnel with college and higher level education shall account for 20% and more of all the staffs of the enterprises.
   5. The annual expenses for the research and development of high and new technology and its products shall account for 5% and more of the total sales;
   6. The aggregate of technological income and sales income of the high and new technology products shall account for 60% and more of the annual gross revenue.

   The Stated high or new technology industrial development zones are as follows:

   Donghu New Technology Development Zone, Wuhan;

   Pukou ExportOriented Development Zone for New and High Technologies, Nanjing;

   Nanhu Science and Technology Development Zone, Shenyang;

   Tianjin New Technology Industries Park;

   Xi'an Development Zone for New Technology Industries;

   Chengdu Development Zone for New and High Technology Industries;

   Weihai Torch Development Zone for High Technology Industries;

   Zhongshan Torch Development Zone for High Technology Industries;

   NanhuNanling New Technology Industries Park, Changchun;

   Harbin High Technology Development Zone;

   Changsha Experimental Zone for the Development of Science and Technology;

   Fuzhou Science and Technology Park;

   Tianhe Development Zone for New and High Technology Industries, Guangzhou;

   Hefei Science and Technology Industry Park;

   Chongqing Development Zone for New and High Technology Industries;

   Hangzhou Development Zone for New and High Technology Industries;

   Guilin Development Zone for New Technology Industries;

   Zhengzhou High Technology Development Zone;

   Ningwozhuang Experimental Zone for the Development of New Technology Industries, Lanzhou;

   Shijiazhuang Development Zone for New and High Technology Industries;

   Jinan Development Zone for High Technology Industries;

   Caohejin Development Zone for NewlyEmerged Technologies in Shanghai;

   Dalian New and High Technology Industries Park;

   Shenzhen Science and Technology Industry Park;

   Xiamen Torch Development Zone for High Technology Industries; and

   Hainan International Science and Technology Industry Park.

   Advanced technology enterprises invested in and operated by foreign businesses may continue for an additional three years enterprise income tax at the tax rate specified in the Tax Law reduced by one half.

   Advanced technology enterprises are FIEs that meet the following requirements:

   1. They belong to the foreign invested projects of a production nature encouraged by the State;
   2. They adopt international advanced and applicable process, technique and equipments; and
   3. The quality and technical performance of their products are playing a leading role in China. 

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Exemption and reduction of income taxes provided to the enterprises described above were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.  In addition, the CBSA believes that the subsidy is further limited to a group of enterprises, which is comprised of FIEs that meet the abovementioned eligibility criteria.

   Program:  Preferential tax policies for enterprises recognized as high or new technology enterprises established in the State high or new technology industrial development zones

   General Information:

   This program was established in the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi (94) No. 001), which was promulgated on March 29, 1994, and came into effect on April 1, 1994.  This program was established to encourage high and new technology industrial development and enhance the technology progress.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, certain enterprises may receive a reduced tax rate of 15% or an exemption of income taxes for two years.

   Legal Basis:

   The income tax reduction for enterprises under this program is provided for in Article I.1 of the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi (94) No. 001).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to hightech enterprises in the hightech industrial development zones approved by the State Council and newly established high tech enterprises.  The newly established high tech enterprises will receive an exemption of income taxes for two years and the other hightech enterprises will receive the reduced tax rate of 15%.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Exemption and reduction of income taxes provided to the enterprises described above were found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises.  

   Program:  Preferential Tax Policies for Township Enterprises

   General Information:

   This program was established in the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi (94) No. 001), which was promulgated on March 29, 1994, and came into effect on April 1, 1994.  This program was established to reduce the burden of township enterprises due to the imperfect social security system and to encourage the township enterprise to improve the living and working conditions of their employees.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, township enterprises can reduce 10% as per taxable sum for subsidizing the cost of social expenses.

   Legal Basis:

   The income tax reduction for township enterprises is provided for in Article I.10 of the Notice on Some Preferential Policies for Enterprise Income Tax Cai Shui Zi (94) No. 001).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to township enterprises.  Township enterprises are “different types of enterprises that are established in townships (including the villages under their jurisdiction) with the bulk of their capital being invested by rural economic collectives or farmers and that undertake the obligations to support agriculture.” 

   The GOC has stated that none of the identified companies is classified as a township enterprise.  Given that the program is intended to support agriculture it is not considered applicable to the CBSA’s current investigation.

   Program: Preferential Tax Policies for the Research and Development of FIEs

   General Information:

   This program was established in the Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee for Foreign Investment Enterprises (Guo Shui Fa [1999] No. 173), which was promulgated on September 17, 1999, and came into effect on January 1, 2000.  This program was established to encourage the research and development of enterprises.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, certain foreign investment enterprises may offset their taxable income by 150% of their R&D expenses for the same year, not to exceed the taxable income for the year.

   Legal Basis:

   The taxable income reduction for certain FIE enterprises is provided for in Article 1 of the Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee for Foreign Investment Enterprises (Guo Shui Fa [1999] No. 173).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to FIEs that have increased their R&D expenses by 10% or greater from the previous year.  The applicable R&D expenses are as follows:

   • New products designing fee for R&D of new production, new skills and new technologies;
   • Technology process formulation fee;
   • Equipment test adjustment fee;
   • Trialproduction fee for raw materials and semiproducts;
   • Technology books and material fee;
   • Intermediate experiment fee not enlisted nto the State plan;
   • Staff members wages of the research institutions;
   • Depreciation fee for research equipment; and
   • Other fees related with trialproduction of new products and technology research

   Exclusions include the following:

   • Purchase fee or using fee for technology purchased from other units by the enterprise or technology using right transferred to the enterprises; and
   • Fees for operation costs and expenses paid by the enterprises engaged

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The reduction of taxable income provided to FIEs was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the State Administration of Taxation on the Issues Related with the Offset Taxable Income on Technology Development Fee for Foreign Investment Enterprises (Guo Shui Fa [1999] No. 173).

   Program: ; Preferential tax policies for FIEs and foreign enterprises which have establishments or places in China and are engaged in production or business operations purchasing domestically produced equipments

   General Information:

   This program was established in the Circular of the Ministry of Finance and State Administration of Taxation Concerning the Issue of Tax Credit for Business Income Tax for Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises (Cai Shui Zi [2000] No. 49), which came into force on July 1, 1999.  This program was established to attract foreign investment and support technology renovation.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, certain FIEs and foreign enterprises are eligible to receive a refund of 40% of the investment for the homemade equipment purchase from the increased part of their enterprise income taxes of the purchasing year over those of the year before. 

   Legal Basis:

   The income tax refund for certain FIEs and foreign enterprises is provided for in Article 1 of the Circular of the Ministry of Finance and State Administration of Taxation Concerning the Issue of Tax Credit for Business Income Tax for Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises (Cai Shui Zi [2000] No. 49).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to FIEs and foreign enterprises that fall under the Encouraged Category and Restricted B Category listed in the Directive Category of the Industries of Enterprises with Foreign Investment stipulated in the Circular of the State Council concerning the Adjustment of Taxation Policies for Imported Equipments (GuoFa [1997] No. 37).  

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The income tax refund provided to FIEs and foreign enterprises was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the Ministry of Finance and State Administration of Taxation Concerning the Issue of Tax Credit for Business Income tax for Homemade Equipment Purchased by Enterprises with Foreign Investment and Foreign Enterprises (Cai Shui Zi [2000] No. 49).

   Program: Preferential tax policies for domestic enterprises purchasing domestically produced equipments for technology upgrading purpose

   General Information:

   This program was established in the Circular Concerning Printing and Distributing Interim Measures on Business Income Tax Credit Applicable to Technological Transformation Domestic Equipment Investment (Cai Shui Zi [1999] No. 290), which came into force on July 1, 1999.  This program was established to encourage domestic investment and support the technology upgrading of enterprises.  The authority responsible for administering this program is the State Administration of Taxation and local tax authorities.

   Under this program, all enterprises with investment on the technological transformation projects conforming to the State Industrial policy in the nation, 40% of domestic equipment investment necessary for its projects may be offset from the newlyadded business income tax in the current year of purchasing the technological transformation project equipment of enterprises compared with the previous year. 

   Legal Basis:

   The income tax refund for domestic enterprises is provided for in Article 2 of the Circular Concerning Printing and Distributing Interim Measures on Business Income Tax Credit Applicable to Technological Transformation Domestic Equipment Investment (Cai Shui Zi [1999] No. 290).

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received preferential tax treatment under this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to FIEs and foreign enterprises that fall under the Encouraged Category and Restricted B Category listed in the Directive Category of the Industries of Enterprises with Foreign Investment stipulated in the Circular of the State Council concerning the Adjustment of Taxation Policies for Imported Equipments (GuoFa [1997] No. 37).  

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The income tax refund for purchasing domestically made equipment is considered to be a prohibited subsidy pursuant to paragraph 2(b) of SIMA, as it is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.

7. RELIEF FROM DUTIES AND TAXES ON MATERIALS AND MACHINERY

   Program: Exemption of tariff and import VAT for the imported technologies and equipments

   General Information:

   The exemptions of tariffs and importlinked VAT is provided for and administered in accordance with the Circular of the State Council Concerning the Adjustment in the Taxation Policy of Import Equipment, which was established on December 29, 1997, and came into effect on January 1, 1998. This program was established to further expand foreign capital utilization, attract technologies and equipment from abroad, promote structural adjustments in industry and technological advancement and maintain the sustained, rapid and healthy development of the national economy.

   The authorities responsible for administering this program are the Ministry of Finance and the Customs General Administration People's Republic of China in cooperation with local provincial and municipal customs branches.

   Under this program, enterprises meeting the eligibility criteria set forth below may apply for exemption from tariffs and VAT on imported equipment and its related technologies, components, and parts. The enterprise must receive approval of its application from the appropriate authority, and subsequently that approval documentation is submitted to the local customs officials who verify that the documents presented are adequate and that the imported items are not listed in the catalogues of commodities that are not eligible for tax exemptions.

   The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The VAT exemption provided under this program is administered in accordance with the Circular of the State Council Concerning the Adjustment in the Taxation Policy of Import Equipment.

   The eligibility criteria related to this program also takes into consideration the following documents:

   • The Current Catalogue of Key Industries, Products and Technologies The Development of Which is Encouraged by the State (2000);
   • Catalogue for the Guidance of Foreign Investment Industries;
   • Guiding Catalogue of the Industrial Restructuring (2005);
   • The Directory of Imported Commodities of NonTax Exemption to be Used in Domestic Invested Projects (2000);
   • The Directory of Imported Commodities of NonTax Exemption to be Used in Foreign Invested Projects.

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received benefits from this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   In accordance with the circular noted above, in order for a domestic invested enterprise (DIE) to be eligible for tariff and VAT exemptions on imported equipment, the domestic investment project that the equipment relates to must be listed in The Current Catalogue of Key Industries, Products and Technologies the Development of Which is Encouraged by the State (Provisional).  In addition, the equipment must be for the applicant's own use and the value of the equipment must be within the total amount of investment in the domestic project.  Finally, any type of equipment that is imported and listed in The Directory of Imported Commodities of NonTax Exemption to be Used in Domestic Invested Projects is not eligible for the exemptions under this program.

   In order for an FIE to be eligible for tariff and VAT exemptions on imported equipment, the foreign investment project that the equipment relates to must relate to the projects listed in the Guideline Catalogue for Foreign Investment Industries under the encouragement category or the restricted B category.  In addition, the equipment must be for the applicant's own use and the value of the equipment must be within the total amount of investment in the foreign project.  Finally, any type of equipment that is imported and listed in The Directory of Imported Commodities of NonTax Exemption to be Used in Foreign Invested Projects is not eligible for the exemptions under this program.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   Based on the directories for commodities of nontax exemption for both domestic and foreign invested projects, it appears that there is an inconsistency between the number and type of items listed in the directory for domestic projects in comparison to the directory for foreign project.

   On the basis of available information, this program could give rise to a subsidy by means of providing reductions or exemptions of tariffs and VAT for equipment purchased by FIEs, and such reductions and exemptions would not be provided to DIEs purchasing the same equipment.  Conversely, a subsidy could also arise if DIEs received reductions or exemptions of tariffs and VAT for equipment purchased and such reductions and exemptions would not be provided to FIEs purchasing the same equipment.  Should a subsidy arise in either circumstance due to the inconsistency between the directories, it would likely constitute a specific subsidy pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited to particular enterprises, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the State Council Concerning the Adjustment in the Taxation Policy of Import Equipment.  In addition, the CBSA believes that should this program give rise to a subsidy, it would be further limited to a group of enterprises, which would be comprised of solely FIEs or DIEs that meet the abovementioned eligibility criteria, particularly in relation to the commodity directories for nontax exempt items.

   Program: Refund of Import VAT of Raw Copper Materials

   General Information:

   The refund of import VAT of raw copper materials is provided for and administered in accordance with the Notice of the Ministry of Finance and State Administration of Taxation about Some Issues Relating to the Refund after the Collection of ValueAdded Tax on Imported Copper Raw Materials (Cai Shui [2003] No. 81), which was established on May 9, 2003 and its amendment on March 22, 2005, Notice of the Ministry of Finance and State Administration of Taxation about Some Issues Relating to the Refund after the Collection of ValueAdded Tax on Imported Copper Raw Materials (Cai Guan [2005] No. 12).  This program was established to support the large and medium copper smelting enterprises of Chain and promote the sound development of the copper smelting industry of the PRC.   It was terminated on December 31, 2005.

   The authorities responsible for administering this program are the Ministry of Finance and the State Administration of Taxation in cooperation with local provincial and municipal customs branches.

   Under this program, enterprises meeting the eligibility criteria set forth below may apply for a refund of VAT on imports of raw copper materials. 

   The program was in operation during the POI.

   Legal Basis:

   The VAT refund provided under this program is administered in accordance with the Notice of the Ministry of Finance and State Administration of Taxation about Some Issues Relating to the Refund after the Collection of ValueAdded Tax on Imported Copper Raw Materials (Cai Shui [2003] No. 81) and the Notice of the Ministry of Finance and State Administration of Taxation about Some Issues Relating to the Refund after the Collection of ValueAdded Tax on Imported Copper Raw Materials (Cai Guan [2005] No. 12). 

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received benefits this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   Under this program, major copper enterprises sign import contracts with Minmetals Non‑ferrous Metals Co., Ltd. and, each year, Minmetals Nonferrous Metals places orders according to the import quantity as ratified under this Circular and reports the quantity of the copper raw materials to be imported by each subenterprise to the Ministry of Finance.

   Imports of raw copper materials can only be used for the enterprises’ selfuse in production and cannot be transferred or sold to others at a profit.  The raw copper materials include copper concentrate, waste copper and crude copper.

   Furthermore, no enterprise may illegally obtain tax refund by reexporting any imported copper raw materials or reimporting any exported crude copper under processing trade. No enterprise may transfer or sell imported copper concentrate at a profit, or misuse any tax refund.

   The refunded VAT is to be used for the technical renovation of the enterprise.

   None of the companies in the Annex have been identified by the CBSA or the GOC.  The CBSA will continue to investigate this program.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The VAT refund for certain copper enterprises was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Notice of the Ministry of Finance and State Administration of Taxation about Some Issues Relating to the Refund after the Collection of ValueAdded Tax on Imported Copper Raw Materials (Cai Shui [2003] No. 81) and the Notice of the Ministry of Finance and State Administration of Taxation about Some Issues Relating to the Refund after the Collection of ValueAdded Tax on Imported Copper Raw Materials (Cai Guan [2005] No. 12)

   Program: Preferential tax treatment for casting and forging products

   General Information:

   This program is administered in accordance with the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Casting and Forging Products (Cai Shui  No. 96 of 2003), which was established on May 27, 2003.  This program was established to encourage the technology upgrading of enterprises and the research and development of the casting and forging products.  It was terminated on December 31, 2005.

   The authorities responsible for administering this program are the Ministry of Finance and the State Administration of Taxation.

   Under this program, enterprises meeting the eligibility criteria set forth below may receive a refund of 35% of the VAT paid of casting and forging products. 

   The program was in operation during the POI.

   Legal Basis:

   The VAT refund provided under this program is administered in accordance with the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Casting and Forging Products (Cai Shui  No. 96 of 2003). 

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received benefits this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   Under this program, 35% of the VAT paid on casting and forging products manufactured by the enterprises named in the Annex of the Circular will be refunded.  The refund is to be used for technical renovation and research and development of the products.

   None of the companies in the Annex have been identified by the CBSA or the GOC.  The CBSA will continue to investigate this program.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The VAT refund provided to enterprises identified in the Annex of the relevant Circular was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Casting and Forging Products (Cai Shui  No. 96 of 2003).

   Program: Preferential Tax Treatment for Dies Products

   General Information:

   This program is administered in accordance with the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Dies Products (Cai Shui No. 95 of 2003), which was established on May 27, 2003.  This program was established to encourage the technology upgrading of enterprises and the research and development of the dies products.  It was terminated on December 31, 2005.

   The authorities responsible for administering this program are the Ministry of Finance and the State Administration of Taxation.

   Under this program, enterprises meeting the eligibility criteria set forth below may receive a refund of 70% of the VAT of dies products. 

   The program was in operation during the POI.

   Legal Basis:

   The VAT refund provided under this program is administered in accordance with the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Dies Products (Cai Shui No. 95 of 2003). 

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received benefits from this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   Under this program, 70% of the VAT paid on dies products manufactured and sold by 160 enterprises named in the Annex of the Circular will be refunded.  The refund is to be used for technical renovation and research and development of the products.

   None of the companies in the Annex have been identified by the CBSA or the GOC.  The CBSA will continue to investigate this program.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The VAT refund provided to enterprises that purchase from the enterprises identified in the Annex of the relevant Circular was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Dies Products (Cai Shui No. 95 of 2003).

   Program: Preferential Tax Treatment for Numerically Controlled Machine Tool Products

   General Information:

   This program is administered in accordance with theCircular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Numerically Controlled Machine Tool Products (Cai Shui No.97 of 2003), which was established on May 27, 2005.  This program was established to encourage the technology upgrading of enterprises and the research and development of the numerically controlled machine products.  It was terminated on December 31, 2005.

   The authorities responsible for administering this program are the Ministry of Finance and the State Administration of Taxation.

   Under this program, enterprises meeting the eligibility criteria set forth below may receive a refund of all of the VAT paid on the manufacture and sale of the numerically controlled machine products. 

   The program was in operation during the POI.

   Legal Basis:

   The VAT refund provided under this program is administered in accordance with the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Numerically Controlled Machine Tool Products (Cai Shui No.97 of 2003). 

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received benefits from this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   Under this program, 100% of the VAT paid on numerically controlled machine products manufactured by enterprises named in the Annex of the Circular will be refunded.  The refund is to be used for technical renovation and research and development of the products.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The VAT refund provided to manufacturers of numerically controlled machine products was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in the Circular of the Ministry of Finance and the State Administration of Taxation Concerning the Refund of VAT after levy on Numerically Controlled Machine Tool Products (Cai Shui No.97 of 2003).

8. REDUCTION IN LAND USE FEES

   General Information:

   This program is administered in accordance with theCircular on Further Encouraging Foreign Investment Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Ministries Transmitted by the General Office of the State Council, which was established on August 20, 1999.  This program was established to attract foreign investors by providing a land use fees exemption to those enterprises with foreign investment that have acquired their lands from the GOC and have paid the transferring fee.

   The Administrative Office of the State Council is responsible for administering this program.  The program was in operation during the POI and continues to be in operation to date.

   Legal Basis:

   The land use fee exemption provided under this program is administered in accordance with Article 4.5 of the Circular on Further Encouraging Foreign Investment Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Ministries Transmitted by the General Office of the State Council. 

   The GOC has stated that none of the companies identified by the CBSA has applied for or has received benefits from this program during the POI.  The CBSA will continue to assess whether any companies have received preferential treatment under this program.

   Eligibility Criteria:

   This program is limited to FIEs that have purchased land from the GOC and have paid their transferring fee.

   Determination of Subsidy:

   On the basis of available information, this program would likely constitute a financial contribution pursuant to paragraph 2(1.6)(b) of SIMA, i.e. amounts that would otherwise be owing and due to the government are reduced and/or exempted, and would confer a benefit to the recipient equal to the amount of the reduction/exemption.

   Determination of Specificity:

   The land use fee exemption provided to FIEs was found to be limited, in law, to a particular enterprise, pursuant to paragraph 2(7.2)(a) of SIMA, i.e. as it is limited, pursuant to a legislative, regulatory, or administrative instrument or other public document, in this case, as set forth in Article 4.5 of the Circular on Further Encouraging Foreign Investment Opinions of the Ministry of Foreign Trade and Economic Cooperation and Other Ministries Transmitted by the General Office of the State Council.

9. PURCHASE OF GOODS FROM STATEOWNED ENTERPRISES

   The GOC has stated that none of the enterprises in the PRC has benefited from this program.  The CBSA will continue to investigate this potential subsidy program.

10. 10. ZHEJIANG PROVINCE – STRATEGIC PLAN FOR LOCAL COPPER PROCESSING INDUSTRY

    General Information:

    The Strategic Plan for the Local Copper Processing Industry (Strategic Plan), prepared by the Zhejiang Economic and Trade Commission, identified various preferential programs to the copper processing industry, including tax programs, land programs, and preferential loans programs.

    Legal Basis:

    The GOC has stated that the Strategic Plan was never issued as an official document by any level of government body in Zhejiang Province, nor did it come into effect.  The GOC has also stated that there are no detailed implementing rules.

    The GOC has also provided a statement from the Zhejiang Economic and Trade Commission to support its claims.  The CBSA will continue to investigate this potential subsidy program.